What caught my eye this week.
One big driver of the thousands of young economic migrants who’ve come to Europe and the UK over the past decade is said to be the spread of social media.
Now that the developing world can see – it all its influencer-filtered glory – how the West has been living all these years, many of world’s poorer citizens want a piece of it.
Wouldn’t you?
Of course we might say they should look to pull their own countries up instead. Strive for freer markets, better governance, more education, stronger property rights, and whatnot.
I agree but it’s easier said than done. While globalisation and capitalism have done a decent job of alleviating true poverty since the 1970s, from memory only a dozen or so developing countries have made it to developed status since the 1990s.
Also you don’t need to be an 18-year old student activist at SOAS to see the West still has multiple embedded advantages, which it strives to protect.
It’ll even adopt the role of victim to do so. Just consider the spectacle of the world’s richest nation bemoaning bullies and vowing to be make itself great again.
Get up and go
The point is though that as an individual the situation can look even more hopeless.
You have to rely on your country’s politicians and institutions to do the right thing. We increasingly can’t even rely on ours for that.
Indeed isn’t there an ironic tension that it’s the champions of individualism in the right-wing media who are the ones who most bemoan young men taking it into their own hands to try to better their lives?
Of course understanding their motivations – and even extending our sympathy – doesn’t mean we should let them act against the law.
Illegal immigration is an overblown and politically weaponised issue, but it’s a real one. Not only does it erode trust in our multicultural social fabric in the short-term, it can only scale badly in the long-term, given the disparity in global demographics.
So we have to draw the line somewhere. Much of the nastiness we’re seeing these days is a reflection of the developed world’s struggles to do just that. (Though to be clear plenty of it is stoked by opportunism from a resurgent far-right, too.)
Would you like an extra zero with that?
All that said, perhaps Barry Blimp – or at least his more hard-pressed children – might be finding it a bit easier these days to empathise with economic migrants motivated by unimaginable wealth abroad.
Because the fact is the West is not a homogenous bloc. And it’s becoming ever-clearer that the US and the UK in particular have been on very different trajectories.
Of course there are millions of poor and struggling people in the US as well as here. And at least ours have better healthcare.
But this Tweet that went viral from Monevator contributor Finumus highlights a real contrast:
If you consume US personal finance and investing media, you’ll come across this wealth disparity all the time. Casual references to $1,000 splurged at a casino or $20,000 spent on a jet ski on a whim or $500 concert tickets as part of an everyday Friday night out.
It’s not that we don’t ever spend like this in the UK. It’s that there seems to be a zero tacked onto the end of the typical well-off American’s fun budget.
Their truly disposable income comes across as an order of magnitude higher.
Mickey Mouse budgets
Here’s an interesting example from the past couple of weeks. The writer Aaron Renn bemoans a ‘middle-class squeeze’ that has created Have-VIP-passes at Disney World and Have-Nots:
[…] there are just a lot of people making a lot of money today.
A couple where I live who are both middle managers at Eli Lilly could easily have a household income north of $350,000. The median individual employee at Facebook makes $379,000.
This has produced asymmetric financial competition. It used to be that there were rich people, but the middle class wasn’t really competing with them. Rich people bought mansions or luxury cars, but it didn’t affect the average person. There weren’t enough rich people to affect how long it took you to get through the line at Disney World, for example.
Today, there are so many people with so much money that the middle class is now in direct competition with people who have vastly greater financial resources.
You might argue Aaron’s take undermines my point. Sure there are lots of richer people in America, but that’s because of growing inequality there too?
Well yes, except that here in the UK we don’t even really have much in the way of wage inflation at the top. And on average we have had stagnant real wages since the financial crisis:
That chart is from last year, but it’s too striking not to use – and nothing much has changed since except more of us are paying higher-rate taxes and there’s a bigger tax burden on employers.
Again, I know and appreciate the US has plenty of poor people. But Britain is frequently compared to the poorest State in the US – Mississippi – and in doing so we’re found to be worse off, per capita.
Not a good look for a nation that still considers itself amongst the leading ranks.
A plague on all your over-priced houses
What’s to be done about? Well plenty that isn’t. But just not shooting ourselves in the foot would help.
You wouldn’t want to make it more expensive to hire people, to overburden development, or choose to depress our wealth creators. And of course as a trading nation you wouldn’t impose permanently higher costs on the economy by deciding to leave the vast and prosperous free market on your doorstep.
At this point you might be hurrying to the comments to post your political point of view. But let’s face it, both sides have done poorly over the past few years.
Team Blue must take the lion’s share of the blame, thanks to their lengthy and shambolic stint in power that left us in this mess. But Team Red has been to the cavalry what Jar Jar Binks was to the war effort on Naboo.
Fortunately it’s still possible in the UK to get ahead financially, if you’re say a well-educated Monevator reader who saves and invests hard, uses tax shelters to the max, and you had the good fortune to be born before 1990.
However you can understand why some people jump on boats in despair at their own political systems.
Just be aware if you are tempted to cut corners that the US is destroying boats it doesn’t like in international waters. (It’s also urging we do the same).
Ho hum.
Have a great weekend.
p.s. We were a bit too imprecise about passwords in The Realist’s excellent debut article on preparing your paperwork ahead of your death. So please note it may be against the T&Cs – and even the law – to access some accounts after your loved one has died, if they were held in their own name. See this commentary from the Bereavement Advice Centre.
From Monevator
Expected return estimates for your financial planning – Monevator
When I die: financial affairs fit for the afterlife – Monevator
From the archive-ator: Optimising the All-Weather Portfolio – Monevator [Members]
News
Bank of England holds base rate at 4%… – Which
…with UK inflation stuck at 3.8% as food prices surge – BBC
Reeves mulls staggered stamp duty payments to boost housing market – City AM
Bank of England eases quantitative tightening to avoid massive losses – Sky
Households put a record £103bn into cash ISAs – Guardian
US tech firms pledge £150bn of investment in UK… – BBC
… and the US and UK have also signed a big nuclear power deal – Guardian
Half-a-million house sales collapse a year due to ‘antiquated’ process [Paywall] – FT
Taxpayers have lost £400m on Rishi Sunak’s Covid-era Future Fund – Guardian
Rolling Stone owner sues Google over AI summaries – Tech Crunch
The problem with taxing the rich [Paywall] – FT
Products and services
Nationwide Switch offer (3 x £175) – Be Clever With Your Cash
Valour debuts Bitcoin staking ETP on London Stock Exchange – Parameter
Get up to £200 cashback when you open or switch to an Interactive Investor SIPP. Terms and fees apply, affiliate link. – Interactive Investor
How do the free childcare hours work? – This Is Money
Nationwide cuts mortgage rates despite BoE keeping rates on hold – This Is Money
Get up to £100 as a welcome bonus when you open a new account with InvestEngine via our link. (Minimum deposit of £100, T&Cs apply, affiliate link. Capital at risk) – InvestEngine
How to collect and spend Boots advantage points – Be Clever With Your Cash
Are you owed a pension tax refund? – Which
Homes for sale for first-time buyers, in pictures – Guardian
Comment and opinion
Global trackers could make investors nothing over next ten years [Managers talking their book, but compelling graphs] – Trustnet
Investing long term is great. It also means you’ll see a crash – Chart Kid Matt
What’s going on with the stock market? – Darius Foroux
Assessing gold’s portfolio value [Good but nerdy] – DE Shaw
How to invest like it’s 1725: the revival of Lloyds ‘names’ [Paywall] – FT
Does financial success come at a social price? – Life After The Daily Grind
Tax strategies property investors should be using [Podcast] – The Property Podcast
Does it still pay to go to university? It’s complex – Guardian
Stress-testing the [US] 60/40 portfolio over 150 years – Morningstar
Navigating the unknowns of financial decisions – Humble Dollar
Compounding versus capacity – Arcadian
Thinking big as you approach retirement [Podcast/transcript] – Morningstar
Naughty corner: Active antics
A long interview with out-of-favour fund manager Nick Train [Podcast] – B.T.B.S.
Investigating tight credit spreads – Behavioural Investment
The risks of extreme concentration… – Verdad
…albeit some “have always been paranoid about size” – Harvey Sawikin
Starting a hedge fund: one year in – Bristlemoon Capital
(Properly) comparing bond yields across markets – FT Alphaville
The ins and outs of distressed investing [Podcast] – My First Million
Kindle book bargains
Flash Boys by Michael Lewis – £0.99 on Kindle
Alchemy by Rory Sutherland – £0.99 on Kindle
The Green Budget Guide by Nancy Birtwhistle – £0.99 on Kindle
Techno Feudalism by Yanis Varoufakis – £0.99 on Kindle
Browse our all-time favourite investing books – Monevator shop
Environmental factors
Can we feed 10 billion people without destroying the planet? – Mother Jones
UK could raise £2bn by taxing SUVs in line with Europe – Guardian
How will Peak District carbon capture plan work? – BBC
China is quietly saving the world from climate change – Noahpinion
How the UK’s largest lake became an ecological disaster – Guardian
Climate scientists saw the future before it arrived – Quanta
Robot overlord roundup
Google DeepMind claims ‘historic’ breakthrough in problem solving – Guardian
How people actually use ChatGPT… – Forked Lightning
…such as to get advice about personal finance and investing – NYT
Perplexity: an untidy history of AI across four books – Hedgehog Review
AI skepticism and Oracle’s big risk – Eagle Point Capital
Why one of the world’s most brilliant AI scientists left the US for China – Guardian
AI will change jobs before the data shows it – Kate Capital
This fairytale may shed light on how AI will change humanity – Guardian
Not at the dinner table
All the sad young terminally online men – Derek Thompson
Trump’s most brazen attack on free speech yet – Vox
Political violence and the role of public leaders – Strength in Numbers
Not since WW2 has the fight for liberalism been this urgent – Big Think
Less wrong – The Pursuit of Happiness
From Colombo to Kathmandu, youth movements topple elites – Guardian
Off our beat
Inside the [physical] Bank of England – BBC
Happier families: new ways of living – The Observer
The British war on slavery – Marginal Revolution
When Britain seized tiny island Rockall to foil the USSR – Guardian
If nothing changes, nothing changes – We’re Gonna Get Those Bastards
How Joseph Wright of Derby put science at the centre of his radical art – Aeon
And finally…
“Remember, things are never clear until it’s too late.”
– Peter Lynch, One Up On Wall Street
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I tend to assume that one of the US’s great advantages is “employment at will”.
I follow the Marginal Revolution blog but I can’t remember seeing any allusion to an economics paper trying to assess the matter. Odd, that.
Pfft. If you fancy some of the action, you’re good for a Trump Gold Card for residency. Go get some of those US salaries – if you’re white, rich and English-speaking (eve that funny dialect of the 52nd State) then the US has a heckuva lot going for it, wide open spaces, generally more clement weather if you avoid known hurricane zones.
Indeed if you are mobile and not tied to a location you can snowbird because of the useful range of latitudes.
I do suspect dearieme has a point – the US is much more flexible and advantageous to those with capital.
To me, the problem the UK faces over immigration is that it has become a lie told so often that it has become the truth.
Net result is that it’s become something the government has to “do something about”. Or else gloating grifter Nigel Farage sweeps to power via his usual menu of empty promises.
There was an interesting column in the Grauniad this week by someone who attended the London marches to observe and speak to some of those present. Upshot is that it’s pointless labelling Stephen Yaxley-Lennon, his ilk and his supporters as “racist”. It just bounces off them. Cognitive dissonance is at play and many are able to tell themselves that they’re not racist, far right or whatever, they are just honestly concerned about the invading hordes of foreign rapists etc.
As with Brexit, simply telling the believers that they’re idiots is not a functional or compelling argument.
The daily grind article: one commenter animadverts upon “boring, identical, monotonous, wealthy London elites”.
If he’s found that only wealthy London elites can be boring, identical, and monotonous then he’s met a narrower spread of people than I have.
To be fair I have spent no time among wealthy London elites so maybe they can claim some sort of World Championship Ultra Unique measure of boring monotony. And Londoners in general always seem rather boring to me anyway, with their endless bloody whinnying about the best way to travel from X to Y. Maybe that’s what gets his goat?
Can’t say I’m finding the pivot to political blogging that interesting.
@Vilehackwriter — Time must be speeding up for you in the political whirl, is I think that was from the end of August. (It was in Weekend Reading 30/8 🙂 )
https://www.theguardian.com/commentisfree/2025/aug/29/asylum-hotel-fascist-asylum-protests-politicians
Or if it was specifically from the march then I guess it’s a meme gaining traction.
It’s correct of course. There’s a centre ground where the discussion should happen where it’s too often not happening.
I know this because as a writer with a modest public platform, I get it at different times from different sides! 😉
@Baron — So you keep saying. At least three times now, perhaps four.
Appreciate Monevator isn’t for everyone, big world out there to find what you’re looking for, no hard feelings. 🙂
About that £40,000 salary, it does seem very low even for the UK and he won’t get very far in London on that. I didn’t wish to venture into the Xitter swamp [edit: sorry, Reddit, but same thing] to get more context but … the “nonprofit sector” is presumably charities, and I’m rather glad that they don’t pay 6 figures to middle managers. If “Mr Tooth” was able to set aside his ethics and work for a bank or FAANG in London, he’d get something more in line with his expectations. If he could get a job offer at all. The jobs market for programmers & IT managers is down in the dumps worldwide at the moment.
Unfortunately, we have arrived at a position that is uncomfortable for most folks, stagnant wage growth, higher taxes being squandered on illegals, police failing to keep the peace, the NHS struggling, people enduring fuel poverty with the highest electricity costs in the developed world and for what greater collective benefit?
We have had a series of second rate politicians of all hues who have looked at 2nd and 3rd order problems. No wonder, the Brits, who are remarkably phlegmatic have had enough and are turning out in their thousands to make their feelings known. It’s a turning point and Kipling was right to warn that elite condescension towards provincial England is a dangerous path: ‘When he stands like an ox in the furrow – with his sullen set eyes on your own, / And grumbles, “This isn’t fair dealing,” my son, leave the Saxon alone.’
Surprised we have not saw as much coverage on France strikes and the general state of affairs. I know, a) this is fundamentally an investment blog, and, b) France has a history of striking/protesting that maybe means it is not news yet, but the situation they find themselves in may be one other countries are going to have to grapple with soon enough. Too high deficits, too much debt, no desire or ability to make changes. This is going to lead to financial consequences, France is just hitting it first due to their political landscape and the fact they have been slower to adopt the bigger changes elsewhere that ease the situation (eg retirement age).
#9 Ah yes, those Saxons coming over and stealing our jobs…
I did note the first time buyer properties via the link started at £290k, that doesn’t help. The government has made good moves on planning and building but it needs to happen much more quickly.
I too am concerned with the inclusion of politics in Monevator. The problem with politics is that it tends to cause headed arguments rather than enlightening discussion.
You should watch a couple of Ramit Sethi’s YouTube “money therapy” sessions for an introduction to Americans who think they are poor but are on salaries that most British people could only dream about!
But they do flirt with the constant danger of bankruptcy if they need anything other than minor healthcare.
For US Vs UK salary figures you really have to take off around 20% from the US salary to make it fair. In the US (when I worked there anyway) I worked 8-5 with a two weeks holiday (only one week the first year of employment *and zero parental leave). The UK would generally be 9-5 with five weeks holiday.
This would mean a US salary of $130,000 would come down to $104,000. Then consider that their 401k/pension contributions are lower than here and you can knock a bit more off.
Also, take into account the current weakness of the pound makes the US salary appear more.
Add in the fact that there is not really a equivalent of an ISA there (if you’re a high earner) and you can only put $20k into your pension then a lot more of your money disappears.
Saying all that, I do feel a lot poorer after moving back to the UK….but have a better life balance, although without a drive-thru margarita bar!
@Thaxted — Thanks for explaining your thinking.
The fact is we’ve had politics in Weekend Reading on Monevator pretty regularly for the best part of a decade, and it wasn’t unknown on the site before that.
e.g.
https://monevator.com/young-cant-afford-a-house-youre-getting-shafted-by-the-government/ (2008)
https://monevator.com/why-i-dont-want-gordon-brown-to-cut-my-taxes/ (2009)
…so in the mix for nearly 20 years! 🙂
I try to keep the tempo to once a month or so, though I’d agree it has crept up a bit recently.
To be fair, from my perspective political risk is currently off-the-charts given the dangerous antics in the US, and also people are saying they’ll elect one of the most economically damaging figures in recent British history in the next General Election, so it is a live subject.
What’s more, government economic policy *is* being driven by political considerations, not fundamental economic ones.
The government is looking at what it can get away with, not what would be the best long-term strategy, when it chooses where to tax, for instance. It doesn’t remind voters we’re £100bn a year poorer (/£40bn poorer in tax receipts) because of Brexit because it doesn’t want to upset Reform voters. Etc etc.
I’d be concerned — and indeed usually avoid or edit out — stuff like “fill your ISA because evil Rachel Reeves / Rishi Sunak is an idiot who greedily wants your money” in an article about tax shelters, unless it was clearly just there for a bit of colour.
Finally my experience is that people who complain about the political content of my posts don’t share my politics. Not exclusively by any means, but that’s the tendency.
Nothing wrong with not sharing my politics (well, economically you’re wrong but not on the other stuff) but it does leave me a little jaded when I read comments suggesting what I write on my website.
Also, these posts don’t do badly. I don’t see a jump in people quitting the newsletter or whatnot. Someone flounces off now and then but it’s rare.
I think most people understand why they’re in the mix on a financial site, and actually see them as broadly even-handed. (In my approach, if not in my conclusions. So there’s no economic argument for Brexit, say, but I’ve never complained about people holding the (minority) max-sovereignty motivation).
FWIW I’ve had two emails this morning praising the post, one of which from a reader I’ve never heard from before who says it is “spot on”! That is unusual but which sort of amplifies my point.
You can’t please everyone but you can be inauthentic or disingenuous. I’ve no intention of running my own website to be either of those things. Cheers!
I have some contact with non-profit staff in the UK and US. I suspect a few things are going on here.
Non-profit salaries are much higher in the US, but the organisations, activities – and resulting pressures – are often much bigger too.
Thanks to the loss of USAID, the non-profit sector in the US is being decimated. Some organisations are cutting staff by 40-50% globally, and starting with the US because, frankly, there are fewer employee protections than in Europe. Add in the US govt taking an increasingly hard line against civil society organisations, it’s easy to why some are considering a move overseas.
Why has the US economy pulled away from the UK over the last decade and a half? What’s a useful takeaway for UK investors looking at the ‘long game’?
The divergence data’s downright (if not alarmingly) stark: since 2007, US real per capita GDP has jumped roughly 39%, while the UK’s has stayed more or less flat (up just 6% in the last 17 years, compared to 46% in the 17 years to 2008).
The argument on the table from the Left (to which I’m sympathetic, but ultimately find weak) is that this gap comes down to the US’s greater appetite for deficit spending, which acts as stimulus. A country spending more when times are tough gets a bigger boost: every dollar or pound of spending creates more than a dollar or pound of economic activity: Gov’s builds roads, construction workers get paid, they spend at businesses, whose owners have more money to spend/invest. A potentially powerful ripple effect.
The US ran big deficits during the GFC and again with the massive COVID stimulus packages, while the UK’s decade of austerity kept its borrowing much more contained.
As a private investor, I see this argument as a useful mental model, but of only one isolated input.
Using standard (and rather simplified) fiscal multiplier accounting, a plausible range is that deficit stimulus explains from a mere ~15% to, at the very most, as much as ~40% of the US–UK gap in real GDP per capita since 2007/08, but with some very (very) large uncertainties around that band.
However, the biggest driver of truly long term wealth creation isn’t spending, but productivity growth. The US has consistently outpaced the UK in this since the GFC. This is the engine of a sustained higher trajectory.
We’re talking about everything from the US’s deeper venture capital ecosystem and dominance in higher growth tech sectors to differences in education, labor mobility, and infrastructure.
These industries have seen explosive growth and have become a huge source of wealth creation.
The UK’s economy, while strong in finance, hasn’t had the same outsized growth from innovation.
As noted in earlier comments, a stronger dollar also makes US GDP per capita look better, and, of course, the US equity boom has created significant wealth effects that can fuel further spending and investment.
Brexit though is the big elephant in the room.
The leaving the EU has a well documented drag on trade, investment, and productivity acting as a permanent, powerful, country specific headwind the US simply hasn’t had to face.
The real story for UK investors is about long term structural advantages. The US simply has a more dynamic, innovative, and productive economy. It’s a machine built with a higher long term potential, which is why it remains the world’s premier destination for capital.
We can never outcompete with it. It’s futile to try to.
This is why, however uncomfortable with the richer valuations we are, UK investors should continue to hold significant US exposure, even if (like me, albeit exceedingly reluctantly, and whilst filled both with doubt at the decision, and with dread at the thought of underperforming) they consciously decide to somewhat (i.e. modestly) underweight the US relative to its global market cap weight.
As for the far right headbangers on the so called ‘United the Kingdom’ march, and the performative culture war outrage about immigration, supposedly out of touch metropolitan elites, ‘luxury beliefs’, and whatnot: for every complex set of perceived problems there’s a simple but wrong set of supposed solutions which actually makes things worse. Ignorance is a universal picadillo, but ignorance of ignorance is the monarch of all vices.
#17 @Delta
“The leaving the EU has a well documented drag on trade, investment, and productivity acting as a permanent, powerful, country specific headwind the US simply hasn’t had to face.”
Germany and France’s GDP per capita had also significantly lagged behind the US over the last 20 years. Is Brexit also an explanatory variable for that?
Your house, your rules.
Inevitably economics are a politicised subject. And certainly if I want to know how Brexit has screwed things up this week, I come here.
It still shocks me that anybody regards any media – especially the mainstream – with any credence whatsoever. Since Leveson – which bizarrely concluded that as an independent press regulator failed in its duties, we practically shouldn’t bother having one at all (aka “self-regulation”) – the mainstream press holds its head up high while pointing at social media being the root of all nonsense, yet hypocritically spewing as much themselves as they can, unabated, very often directed and funded politically with openly zero restraint. How people don’t see this and just take everything at face value is beyond me. The “fact check” and “truth” brigades – which of course the press are not interested in as raison d’etre – are a cross between an Orwellian nightmare and a farcical attempt to convince the minds of children.
Strangely, we’re happy to demand company directors, banks etc are held legally accountable through institutional structure but not the press.
On UK vs US wages, one only needs to look at GBPUSD over the past 20 years to see where it’s gone – Britain has become poor and poorer.
I’m still not sure either what people think is going to happen after Farage has had his go urinating over Britain’s cornflakes either. I’m sure we’ll see a few shocked Daily Mail articles about “how we never voted for this” etc (see above).
@Vic Mackey #18: Without meaning to cause any offense here (and I’m thin skinned, so I know all too well how easy it is to take offence when none is intended): the question you ask me is a strawman.
Did I say, or imply, that Brexit caused, or contributed, to the EU lagging the US?
No I did not.
So am I going to defend such a PoV?
No, obviously I’m not.
Am I saying that it hasn’t helped the UK?
Yes I am.
Will I defend *that* point.
Yes I will.
If you’re going to attack a point, then that’s all to the good, but then attack a point which I have made, and not one that I haven’t.
What I did say, in effect: The simple narrative is probably the wrong one. It might be the more attractive one, but that makes it no less wrong.
Apologies Delta. I guess my interpretation of “Brexit though is the big elephant in the room” was that it was a suggestion that it was a strong explanatory variable for the UK’s relative underperformance vis a vis the US.
Clearly I didn’t grasp the syntax there. No offence meant.
No need to apologise, and it’s down to my poor phraseology.
I hadn’t previously considered the EU countries v the US at all.
Bringing them in now, what I’d then say is this:
Imagine an economic boat race.
Team US have a high speed powerboat capable of 70 knots (like this one 😉 ):
https://yachtcreators.com/yachts/fleet/miami-vice-boat/
Team US’ boat engines are a combo of its world dominant tech sector, its unrivalled and deep capital markets, its optimistic entrepreneurial spirit, its labour market flexibility, and its unparalleled advantage of having the most favourable geography.
Both Team EU and Team UK, in contrast to Team US, just have wooden hulled sail boats.
Team EU has some occasional crew issues (e.g. French unions, Italian and Spanish political chaos).
Team UK also has some issues like that, but maybe less so.
However, Team UK, unlike Team EU, or indeed Team US (at least until this tariff business started), decides in 2016 to massively complicate its relationship and its cost of doing business with its nearest and most important trading partners / counter parties (in Team EU), i.e. Brexit.
Due to the significant disparity of size between the markets of Team EU and those of Team UK, this affects Team UK much more than it does Team EU.
When the race starts, Team EU and Team UK are both predestined to lose quite badly to Team US.
But, in effect, Team UK has gone and created a head wind for itself which Team EU doesn’t have, i.e. a relative trade disadvantage.
So, whilst Team EU is still going to lose to Team US, Team UK ends up doing worst of all, limping to the finish line, long after the other vessels have finished the race.
The 60/40 Portfolio: A 150-Year Markets Stress Test item got me puzzled. The graph demonstrates an increase in $1 to $33,033 for a 100% equity portfolio and just $4,023 for a 60/40 equity/bond portfolio since 1871.
I must be missing something here, but it appears to me that an investment of 60 cents on 100% equities in 1871 would have done way better than 60 cents equities plus 40 cents bonds, making $19,819 against $4,203 for the usefully larger investment.
This seems to demonstrate a significant negative rebalancing bonus.
I would be grateful if anyone can tell me where I am going wrong here and apologies if it is obvious.
As an aged (79) and long retired (23 yrs) Monevator reader I originally like most came to the Blog for financial information but was soon aware of the Investors political proclivities
I really enjoy politics and the free press we have in this country with serious full on adversarial discussions via the Fourth Estate and Social Media-something in this country we take for granted sadly -most of the rest of the world dwell in ignorance though the Internet is changing things fast
So I didn’t come here initially for political discussions but separating finance from politics is increasingly difficult-perhaps it was always so and it wasn’t recognised as clearly as is is now
It’s important to have political views-mine don’t necessarily chime completely with the Investors but we are as one on finance and learning as much as we can in a hopefully unifying way on that particular subject?- that’s probably asking too much but I continuing to read and enjoy the Blog
xxd09
@Onedrew
The investment values are in real terms and I suppose the takeaway is that bonds may have had significant real terms negative returns when rebalanced. It’s a good question. I wonder if there’s more at play.
Either way of course, it assumes that no money is withdrawn, and that the portfolio has a seriously long investment horizon both of which are unrealistic as the portfolios are there to serve a purpose. Running a withdrawal rate of x% over numerous periods of 25 years may (probably will) show a different risk/reward profile.
One of the first links I go to of a Saturday morning is from the archive-ator. Something for everyone and always interesting to see your take on what might have particular relevance. @TA’s series on the All-Weather Portfolio I think up there with NCF as stand-out Monevator resources.
And another vote in favour of occasionally lighting the political blue touch paper. Enjoy the debate and would concur with @xxd09’s wise words.
@Vic, @Onedrew
I found the 60/40 article very interesting and offer the following summary of my own experience since I retired a bit less than 9 years ago. My data is in real terms (using CPIH inflation) and my Pot is neither 100%E’s nor 60/40. If anything, it is more akin to the latter, but probably not that close as I largely eschew bonds. Furthermore, my Pot has also somewhat morphed over the period too and now has a higher allocation to E’s than it did on retirement*.
Interestingly**, my Pot hit its peak about one and two thirds years after retiring. Since when it has been on an interesting journey, to trough at a tad over 5% down [on its starting level] some two and a half years ago when I also started my DB pension***. Since then it has slowly clawed its way back and finally exceeded its previous (early) peak in the last month or so. Had I still not started my DB pension I estimate it would now be back to a tad more than when I pulled the plug nearly 9 years ago.
* still less than 50% though
**this was definitely not expected and I well remember my surprise at being able to live from my Pot whilst it was still growing in real terms
***about four years earlier than originally anticipated – a long story
At a macro level, I find it just impossible to separate politics from economics/finance for the US, UK or Europe. I trade emerging markets for a living, and the idea I could trade Turkey without considering Erdogan political aims, or Hungary without considering Orban and his local oligarchs would be bizarre. It’s the same now for the US. The US has seen almost complete state capture at this point by oligarchs and their cronies. The UK and Europe are likely to slide in the same direction given the likely victory of right-wing parties over the next electoral cycle.
Re #27:
For context I should have added that had our first [nearly] nine years panned out – as envisaged prior to pulling the plug – the Pot would have lost several tens of percentage points in real terms by now; whereas (even without starting my DB early) I estimate the Pot to be currently worth a tad more than when we pulled the plug in real terms. So, to date we are somewhat ahead of plan. However, in my baseline plan (which was allegedly a 50% confidence plan) the Pot should pick up from the planned start of the DB pension (about 18 months hence).
I will be interested to see how reality compares with the baseline plan as more time passes and that significant planned [DB] milestone passes into history. FWIW, I currently suspect we might stay ahead of the baseline plan for many years, but I have been very wrong on this sort of thing before!
@Vic Mathey @Al Cam @All
I think the problem may lie in the murky maths of calculating real returns rather than nominal. Some of the data used refers to inflation adjusted returns, for example.
While I really want to know how I am doing after allowing for inflation, I also want to know the base nominal returns because these are the only numbers I can actually trade with.
I would be grateful for any other insights, as it seems to me this is absolutely critical to all our investment decisions.
On Monevator and politics, I am quite content with the way this has been managed in the arguments to date. Few debates cannot be improved by the winnowing of all pejorative adjectives, so maybe impose a strikethrough on these?
Life and politics (and the world of finance) are inherently intertwined, so it would be ridiculous for Monevator to act as if finance and investing exist in a vacuum. Some political actions make things better for us (eg, ISAs, SIPPs), some the opposite (eg, Brexit, Trump, the uncontrolled unaffordable house price bubble, and that every graduate for the past 30 years has come out burdened with terrifying levels of debt – it’s much harder to try to found the successful businesses of the future when the first years of your working life are mostly about just trying to keep your head above water). It’s entirely reasonable for a site such as this to point out the effects that politics has in the wider world, including the worlds of finance and investing.
@ZXSpectrum48k
This is it exactly. I have no interest in politics other than the understanding it is unavoidable and the only way a civilised society can decide where it wants to direct its future resources, and which direction(s) it wants to take – as political decisions do impact everyone. The impact it has in financial matters is messier, as sometimes the political will, even when supported by the masses, is detrimental to the financial situation and that is the choice made.
In recent times we often turn to migration as the problem example and the situation is far more complicated than anyone is ever prepared to discuss. I would happily have increased migration, but even with this opinion, I can see and understand the frustrations with the situation where we have people arriving from perfectly safe democratic countries, and claiming asylum/persecution etc. It does not even matter what the true scale or cost of this is, as the fundamental issue is not one of cost, it is the perceived failure of mainstream political parties to get on top of it. Lets be honest here, Reform and Mr Farage only have one hit single and its all about migration. If the UK could get its act together and get on top of the aspects of migration that are draining all the time and effort and wasting political time (we have really serious stuff to be dealing with instead), then Reform would likely have no chance and no one would be looking at them. I personally am sick of hearing about migration but if Reform get any power at the next election we know it is because the mainstream parties could not bring the perception of how (mostly illegal) migration was being dealt with.
@Onedrew:
Indeed the only figures you have to hand are nominals. FWIW, I also like to know how I am doing in reals even if it is ultimately rather sobering, especially after a burst of run away inflation.
Money is about exchanges between people and politics is the study of how people can best live together. The subjects are obviously intertwined. The richer we get the more intertwined they’ll become as we don’t have an economic model where growth doesn’t also grow inequality (maybe because it doesn’t exist as it’s a principle that exists across domains e.g. Matthew effect, Pareto principle).
The British war on slavery is a remarkable story made the more remarkable through its origin in Christian faith and a belief that we’re all made in the image of God (which the article doesn’t mention at all!)
@Onedrew #23: “demonstrate a significant negative rebalancing bonus”: yep. I think that’s right. Put another way:
Option A: £100k in VWRL for 30 years
Option B: £60k in VWRL for 30 years
Option C: £100,000 into a continuously rebalanced 60 global equities/40 global bonds for 30 years.
Option C will usually have a significantly lower end sum than Option B (whose end sum will simply be 60% of Option A). With diversification at a fixed % between a higher and lower expected return pair of asset classes you’re inevitably rebalancing from the higher return asset into the lower return one just to maintain the fixed weights. That may well reduce volatility, and improve risk adjusted performance, but it will tend to impair total performance over the whole period.
“a remarkable story made the more remarkable through its origin in Christian faith … which the article doesn’t mention at all!”
Aye, but one of their shrewder commenters put his finger on it:
“abolitionism started as a great awakening among Quakers and Evangelical Anglicans. Even we atheists must give them the credit for that. Thereafter it spread through much of the British population.”
One thing that I think gets missed about the immigration debate is what it says about the efficacy of our state (under parties of any colour) and the credibility of political pledges. Leave aside if you can the subject matter, our state (which is supposed to be sovereign) cannot stop a series of inflatable dingies arranged by small time crooks from coming over week after week, year after year. That is terrifying for what it says about the state’s ability to competently solve any issue (eg housing, benefit reform, obesity etc). And the major parties are seemingly happy to make pledges (‘stop the boats’, ‘smash the gangs’) that they seemingly have no idea how to honour. How are voters supposed to chose if they can’t believe anything being said to them? In many ways, immigration has become a totemic symbol of the failure of government and mainstream parties. I say that with no relish. God help us
@Delta Hedge: Thank you. I have also asked ChatGPT to run the numbers over shorter periods using various data sets and all arrive at the same conclusion. I knew that 60/40 would not perform as well as the 100% equities portfolio but I am ashamed to admit that I had not reached the conclusion that just holding the 60 equities portion and torching the other 40 would also beat 60/40 by a huge margin. It is quite sobering.
@AndyDefresne. The majority of the voting public has no understanding of the sheer legal complexity involved in stopping the boats. Given how unpopular illegal immigration is, do they think the Tories and Labour would not have stopped it if it was easy?
Of course, according to Brexit types such as Farage, leaving the EU would lead to greater sovereignty. Leaving the Dublin agreement meant that we would have more control of our borders. Yet the very opposite effect has been observed. The UK has seen a major increase of asylum applications since leaving, with the Channel crossings becoming the primary route.
Yes, being outside the Dublin System means that the UK is not required to accept transfers of asylum seekers from EU states. But that cuts both ways – the EU states are not required to take asylum seekers from the UK either. Moreover, the UK is still bound to consider asylum applications by the UN Refugee Convention.
So the UK, a state at the end of the migration chain, decided to cancel it’s ability to transfer migrant back to any EU state they has previously entered or transited. And how many was that? Well most of them. The UK decided to throw away it’s biggest advantage. The UK decided to make the itself a much more desirable destination for migrants. And who exactly decided? The voters did in 2016. Another obvious result of Brexit that our wonderful voters somehow couldn’t see. And they dare to complain about the decision they made.
Even more amazing – who do many of them think can solve this problem? Farage. The guy who promised those “sunlit uplands”, who promised more sovereignty but delivered exactly the opposite. Some voters are so f**king dumb, it actually beggars belief.
I always thought Idiocracy was a comedy. Turned out is was a prophecy.
The Dublin Accord was de facto binned years ago and Schengen is now following. The soft Mediterranean underbelly of the EU will ultimately have to be militarised, Trump was ahead of the game, again, here.
@Onedrew, you’re right to question the result of the analysis. Of course rebalancing into a lower returning asset will reduce returns, that’s obvious, but the fact that in this instance it outperforms torching the bond money is perhaps a statistical quirk.
As I said though, it doesn’t matter. No withdrawals and an overly long investment period makes it an intellectual trifle rather than anything you’d want to hang your investment hat on.
Re @ZX #40: the future is destined to be more right wing, populist, older, less tolerant and less open to either change or to difference, as well as being less flexible and, in all likelihood (given the dependency burden), less wealthy.
Rising differences between conservative and progressive birthrates tilt the political compass, one generation at a time.
– US county level data shows that counties voting Republican had a median TFR of 1.84 vs. 1.31 for Democrat counties in 2024. For every 10% increase in Republican vote share, expected TFR increases by 0.09.
– Studies of completed family size find conservative women born in the late 1970s averaged 2.1 children (replacement level), while moderates and liberals had 1.8 and 1.5 respectively. Recent cohorts show similar trends.
– European data similarly finds conservative and other right wing individuals have, on average, more children and more grandchildren than left wingers and liberals.
The ‘good news’, at least if you’re not a fan of the sum absolute total of human ignorance ( 😉 ), is that overall birthrates are declining, with global TFR soon to dip below 2.1 (if it hasn’t already happened), and with global population to start (and probably not thereafter stop) shrinking at some point between the 2060s and 2080s.
Based on this, whilst ~120 bn have been born (of whom 8 bn are now alive) since sapiens first emerged as a distinct species, it’s unlikely that more than 26 bn additional people will ever live:
https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0298190
Peak human is in the rear view mirror now. This is as good as it gets 🙁
Apols: should be in reference to #39.
@ZX #39
The EU Parliament itself called the Dublin Regulations “dysfunctional”. The UK transferred 263 people under the scheme in 2019 (out of 3,258 requests).
Agree it’s a complex topic (even just the travel documents issue alone) but the EU did not and does not have a solution either.
100% equities will always win the investment stakes
Investing in the S&P 500 over the last 100 years has returned 10% nominal -7% real pa but…………
Most amateur investors simply cannot live with the volatility of a 100% equities portfolio especially when they have amassed a reasonable pot and are facing retirement so………
Bonds /Cash are added to reduce the volatility of the portfolio,preserve its value and enabling the investor to sleep at night
Performance of the portfolio is therefore reduced but the investor is able maintain himself in the stockmarket without bailing out at the bottom of the market racking up serious unrecoverable losses
70/30 to 30/70 asset allocations seem to do the business
Speaking for myself (aged 79-23 years rtd ) I retired with a 30/70 portfolio-currently 35/65 but it’s all very personal
Possibly I had saved enough,live frugally and watch costs?
xxd09
@DH#41
Is it so certain that the mother’s political leanings transfer to their offspring?
@Bassavoce #45: I hope not, but fear as much. People grow up in a cultural and political milieu dictated in childhood and adolescence by their parents/relations, and by the values of their familial and wider social circles. Some move away from that, even end up consciously rejecting it. But I’d guess that most don’t.
There’s a lot of path dependency in life. Outcomes are often overdetermined. We all have choices, from time to time, which we can freely make, one way or the other; but perhaps they’re fewer and less impactful choices than we’d readily admit to ourselves.
@All: further to the excellent Verdad and Harvey Sawikin pieces in the W/e links on the issues around concentrated portfolios and position sizing, I received this from Substack this evening on the very same theme:
https://open.substack.com/pub/marketsentiment/p/the-perils-of-concentration
“Risk is what you don’t know you don’t know”.
I’d add to this Soros’ universally valid axiom of returns that what matters is not how often your right and how often your wrong, but rather how much you make when you’re right and how much you lose when your wrong.
ZXSpectrum48k post 39 is so valid! I would say 99% of the public have virtually no knowledge of the true factual or legal position on irregular migration and a sizeable proportion aren’t interested in inconvenient truths. (Illegal is a contested politicised misnomer- under the Refugee convention, no criminal penalty can be applied for “illegal” entry and c.2/3 are granted asylum). The closest truth some politicians sometimes mention is “there’s no silver bullet”. Yet the political imperative is to tell people they’ll stop it. Short of building a wall in the English channel, a state can only take and increase steps to deter and reduce numbers eg by bilateral international agreements. However merely promising to gradually reduce it isn’t what people want to hear. That anyone would believe Farage’s promises after Brexit is a psychologic phenomenon. Humans want to believe what they want to believe, regardless of reality.
Some interesting remarks re parents influence on kids
Raised 3 myself -all 3 (now aged all about 50) are in sync in most things with their parents with rwo politically conservatish and the third more liberalish
Their parents are aged conservatives with a small c
From my parental experiences plus running a community centre for many years that had a very large youth club attached I would say parents have by far and away the most influence on their kids barring some serious environmental happening like a serious car accident etc
A high functioning family is probably the most powerful “influencer” kids will ever have
Perhaps a reassuring fact for parents in an age of information overload and social media
xxd09
@2 more years – thank you! Much appreciated. Will be raising this with TI in my next Monevator 360 appraisal review.
I have been amazed by the salaries that have been discussed by US financial bloggers and podcasters over several years.
The FT ran an article a few days ago about US citizens’ moving overseas due to the political situation there recently. Some of the comments to this article, mostly by Americans, are quite fascinating about how expensive the US can be. Salaries in Europe are lower but the social welfare systems compensate for some of the direct losses.
The US workers escaping for a career overseas – Financial Times
https://www.ft.com/content/64a3301e-29f8-4d93-a39a-1c8941cd8f4c
On the UK’s situation, alas, I think it still has to just run its course. It has to get worse before it gets better. Farage is but the next step for this cycle.
Per the comments above, I’m not even that sure the general public is actually that bothered about stopping illegal migration even though they might think they are.
What they are really bothered about is the 4 million population growth over the last ten years, which has increased population density per sq km in England by around 10% to around 438 people per sq km and has clearly had some negative social effects. A somewhat massive generalisation but in the US it’s around 36 people per square km. So 90% less. It’s also about 50% less in France, Germany and 80% less in Spain. Yes I’ve used some convenient statistics to make a point but the general direction is correct. People are very pissed. Last time I looked the land mass of the UK was roughly the same as its always been.
Illegal migration on the boats has been very comfortably less than 10% of overall migration in the UK. The vast majority has simply walked through terminal five encouraged principally by the conservatives (and laughably the BoJo era) to support absolute GDP growth.
If you want to cut the majority of migration it’s really quite easy to do – you just stop giving out visa’s. Of course the NHS, universities and the care sector will probably fall over and our paltry GDP growth will turn negative but hey you pays your money and takes your choice.
On a personal investing note….I cannot stop loading up on VMID and low coupon Index Linked Gilts. They look very good value compared to what else is on offer.
@Onedrew (#30):
Re: “I think the problem may lie in the murky maths of calculating real returns rather …”
This might help cast some light into that murk: https://earlyretirementnow.com/2019/10/30/who-is-afraid-of-a-bear-market/
and for UK specific info about said calculations the chatter betwixt @Rhino, @ermine, myself, and others at: https://simplelivingsomerset.wordpress.com/2024/02/09/capital-gains-cogitations/ could be of some practical use.
@SF (#51)
Population growth (or otherwise) is driven by births, deaths, and net migration. While birth and death rates have continued to fall, the latter has led to an increase in population of 0.6m (or so) over the last decade, while net migration has added the remainder. Interestingly, natural population growth is predicted to become negative after 2032. Interesting article at https://migrationobservatory.ox.ac.uk/resources/briefings/the-impact-of-migration-on-uk-population-growth/
I note that you used England rather than the UK (286 per km^2) for population density, although compared to France (122) we are more densely populated, but less than Japan (340) – a small island off a large continent that may be distinguished from the UK in having little or no inward migration.
@Alan S:
You have, I would imagine inadvertently, opened a whole other can of worms. Specifically, how reliable are the measurements. In particular the ONS’s estimate of migration via their International Passenger Survey* is understood to be woeful at best. And some wags reckon there is no need to continue with the decadal census.
In the land of the blind the one-eyed man is king comes to mind, or has it been more akin to out of sight out of mind.
*I was once interviewed at an airport as part of this survey (IMO it was a bit of a joke) and only learned afterwards what it was used for
@Alan S
The population density for England is the key metric as Scotland and Wales are largely uninhabitable wilderness.
As such, England is the second most densely populated country in Europe behind Netherlands and considerably more so than Japan.
@Vic Mackey (#55)
Worth noting that upwards 60% of the area of Japan is estimated to be ‘uninhabited wilderness’ (mountains and forest), so perhaps the comparison between England and Japan in terms of population density remains valid (their aging population exceeds ours).
@Al Cam (#54)
You’re right about the quality of the stats – my understanding is that while the incoming numbers were fairly rigorously collected, those outgoing were less so.
It also worth noting that the largest proportion of inward numbers is those on student visas – most of those will return home on a permanent basis after 1, 3, or 4 years (depending of their course type) unless they are subsequently able to secure a work visa.
@Vic Mackey
Migrants go to Scotland and Wales too. Historically, Glasgow had a large Italian community (and that may still be the case). Also, Japan is a “largely uninhabitable wilderness” (about 73% is mountainous).
I agree the people/sq ft thing is a red herring. I like the countryside as much as anyone who dreams of fleeing London for a cottage up a lane, but the population of the UK (and the mindset of its inhabitants) is increasingly urban:
https://www.gov.uk/government/publications/trend-deck-2021-urbanisation/trend-deck-2021-urbanisation
With that said I’d agree as I’ve written many times before that we’ve reached a point with immigration where it’s clearly overtaken a significant chunk of the population’s comfort levels, whatever my views. That’s clear in the Reform polling etc. That they were ‘betrayed’ by arch-charlatan Johnson won’t stop them (might help them) vote for Farage.
From my POV of course the quid pro quo all-around system we had in the EU was infinitely superior. While the 650m or whatnot on our doorstep have a huge continent to explore living in, most Brits are now stuck here or making YouTube videos about fleeing to Dubai or digging around for the rights to an Irish passport.
@Alan S,
To add some colour to the stats.
The 3million is IMO a “good” example. This is an active grassroots organization that was formed in 2016 to protect the rights of EU citizens living in the UK after the Brexit referendum. It is named after the [officially] estimated number of EU citizens who made the UK their home.
However, by the end of 2024, around 6.34 million people had applied to the EU Settlement Scheme (EUSS) submitting a total of 8.35 million applications.
However you cut it, that is quite some difference!
Having said that, and as is often the case, the story is not that simple. A somewhat more detailed summary is given at: https://migrationobservatory.ox.ac.uk/resources/briefings/eu-citizens-living-in-the-uk-an-overview/
Might also be worth noting that The Migration Observatory (TMO) believe that whilst not perfect, the Census is the best available data source for measuring the population as of March 2021. However, more than 4 years down the line (ie getting on for half way to the next census!) TMO seem sceptical that any improvements will be made to the between census measurements/estimates, specifically: “It remains unclear whether and to what extent the new survey will resolve the problems the old survey faced. ONS does not appear to have short-term plans to adjust the current survey figures to produce more reliable estimates in the meantime. For the moment, therefore, it remains unclear when any new population estimates will arrive to update the Census.”
A can of worms seems an appropriate summary.
I had to re-read the article after all the comments about it being too political – I still don’t get it. It seemed pretty focussed on the success of the American worker to me. It’s clear where The Investors political views lie but it was pretty balanced to me. Perhaps it’s a reflection of the fact that some people prefer to stay in their own echo chamber.
And the Telegraph confirms it today too.
Even fully factoring in Cost of Living issues like healthcare, the UK is now substantially poorer than any US State including Mississippi (UK £30,000 disposable family income v Mississippi’s £38,000), with average UK Top 5% disposable income less than average US Top 10%, and with median US disposable family income up £48,500 to £57,500 since 2009 compared to £33,500 to £36,500 in the UK. American households now on average hold nine times the value of shares of UK households. The US top tax rate (37% for Federal income tax) comes in above £451,000. In the UK additional rate tax is from just £150,000.
https://www.telegraph.co.uk/money/consumer-affairs/why-american-families-so-much-richer-than-british/
For how long can the divergence increase? Will it ever narrow?