You partied in your 20s and 30s. Or you had kids early and there was no money leftover. Or perhaps you got divorced and your partner took the lot. Bottom line: you’re late to start investing.
Are you doomed to eat cat food in your retirement? To be grinding out another shift in your 80s as the oldest barista on the block?
Probably not – provided you to take sufficient action now to turn things around.
You’ll need to be more focussed than a younger saver though, without their head start.
And maybe you should do a few things differently.
Saving grace
Imagine you’ve woken up penniless after 20 years in a coma – long of hair, but short of time.
The good news? You avoided selfies, Brexit, Covid, social media, and the last series of Game Of Thrones.
However you also missed out on two decades of compound interest effortlessly growing your wealth.
It’s a financial morality tale is as old as time spreadsheets, handed down from bloggers to Twitter pundits to TikTok influencers.
Person A and Person B both start work in their early 20s. They earn the same salary.
Person A notices there are a lot of old people around and begins to save, before they too get old.
Person B imagines they’ll wear crop tops forever, eats out or orders in every day, spends everything, saves nothing, and reaches their 40s with little to show for it except for a pretty Instagram account.
Run the numbers and Person A may already be headed for a comfortable retirement in their early 60s.
But person B will need to save much more – and/or for much longer – just to catch-up.
What happens when you invest early
We’ve marvelled at the mathematical wonder of compound interest on Monevator before:
Consider two investors: Captain Sensible and Captain Blithe.
From the age of 25, Captain Sensible invests £2,000 per year in an ISA for 10 years until he is 35. At 35 he stops and never puts another penny into his fund again.
Captain Sensible then leaves his nest egg untouched to grow until he hits age 65. He earns an average annual return of 8% and when he looks at his account 30 years later, he has £314,870 to play with.
Captain Blithe, meanwhile, spends the lot between the ages of 25 to 35.
Only when he hits 35 does he sober up and start tucking away £2,000 per year in his ISA. He keeps this up for the next 30 years until he reaches 65.
Captain Blithe earns an average annual return of 8%, too. He ends up with £244,691.
To recap:
– Captain Sensible has invested a total of £20,000.
– Captain Blithe has invested a total of £60,000.
Yet Captain Sensible’s pile is worth over 28% more than the late-starting Captain Blithe’s – even though Sensible only invested a third of the amount.
Compound interest takes a while to get interesting.
All things equal, the earlier you start, the bigger your pension snowball will be by the time you’re old enough to start worrying about it.
What if it seems too late to start investing?
Of course hearing “you should have started earlier” isn’t any more welcome in personal finance than when you’re facing last dibs at a swingers’ party.
There’s not much you can do about that now. What matters is how to best proceed.
The good news is that beginning in 2012 most people have been auto-enrolled into pensions at work.
But if this came too late for you – or if you didn’t put enough away – then start addressing things today.
Powering-up your pension
To catch up with swots like me who were aggressively saving by age 23, you have two broad routes:
- #1: Take the conventional approach on steroids. Live much more frugally, spend a lot less, save much more, invest riskier, work longer – and try to do it all smarter to further ratchet up your returns.
- #2: Do something different. Start a business, take a more active approach to getting rich, marry strategically, rob a bank, punt on crypto…
Clearly you can also pick-and-mix from these options.
But know that all of them – from making your own lunch to save an extra tenner to gambling your life savings on a start-up – come with potential risks, rewards, and the chance of outright failure.
Risky bets like putting real money into the likes of Bitcoin might well speed up your gains.
But very often taking bigger or less orthodox risks will see you do worse. People try to get rich quick because it promises a shortcut, not because of any stellar track record.
So you must consider the options for yourself and chart your own course.
Just for the record, we strongly advise against robbing a bank!
Start at the end: work out your retirement income needs
We’ve looked at devising your investing plan before, and also how much you can eventually withdraw from a portfolio.
But before you get to that good stuff, you need to understand how far behind you are – and what investing success would look like.
When it comes to retirement, success mostly means meeting your annual spending requirements with a low risk of running out of money.
So you’ll want know how much you’ll need – realistically – to spend in your retirement years.
A good way to get a handle on this number is to track your current spending. Use that as a base to figure out your budget, adjusting as seems appropriate. For instance, fewer work suits in retirement, but more gardening magazines.
For a quick start though, see estimates from the likes of the Pensions and Lifetime Savings Association (PLSA) and Which magazine.
Here are the latest annual retirement income figures from the PLSA:
Source: PLSA
All figures like this are controversial (read a relevant Monevator comment thread for a taste) because our expectations are all different.
So it’s always best to work out your own figures if you can.
- How to figure out how much income you need to retire.
But for the purposes of a late-starter getting – well – started, ballpark figures will help you to zero-in on the scale of the challenge.
From there you can estimate the size of retirement pot you’ll need to generate your desired income – in conjunction with your State Pension – and so what shortfall you face, especially as a later starter.
You can always further refine your numbers as you go.
- More on how much to put into your pension to achieve your goals
Sensible ways to get your pension plans back on track
So you’re on the wrong side of those Sensible Sarah versus Spendy Samuel spreadsheets?
Let’s look at your main evasive action options, with links to further reading.
Save more
By far your best remedial action is to put much more of your salary into your retirement pot. Ideally in the most tax-advantaged way.
Every penny you save rather than spend today is more income for your future self.
Also, by getting used to a leaner household budget now, you may be happier making do with less when you do retire.
Crucially, your savings rate is one lever that’s mostly under your control – unlike say investment returns or how many healthy working years you have left.
Remember there are young FIRE-seekers who are targeting retirement in their 30s or early 40s by saving hard and investing.
To some extent you can flip that script, copying their tactics to catch-up late.
Work for longer and retire later
Another sure winner. Every year you stay in paid employment is (a) an extra year to put savings away, (b) another year for your pension pot to compound, and (c) one less year in retirement that your pension has to pay for.
Working for longer is probably not the most appealing prospect, but maybe you can make lemonade out of lemons and enjoy a late bloom at work? Or pivot to a second career?
Our final years in work are usually extra-valuable because earnings are higher at the end of our careers than at the start. (Though professional footballers and lap-dancers may need to pursue a different tack).
Laser focus on your pension
Normally we think it’s a good idea to save into both an ISA and a pension, given they are both tax-efficient wrappers.
That’s because money in an ISA is much more accessible – which can be a huge benefit if you need it.
But saving into a pension usually has a numerical edge due to tax-bracket arbitrage, salary sacrifice, and the tax-free lump sum you can withdraw on retirement.
As a late starter, ISA savings may be a luxury you can’t afford. Run the numbers to see if you’re better-off throwing everything you can into your pension in your precious remaining work years.
Maximise your employer’s pension match Your employer is obligated to chip in 3% of your qualifying earnings into your pension under the workplace pension rules. You must contribute 5% of your earnings (though this will cost you less in take home pay terms, after tax relief) for a total minimum contribution of 8%. Some employers are more generous though, and will match further contributions you make up to some limit. This is effectively a hike to your salary, albeit a pay raise that you must put into your pension. Contribution matching is an unbeatably cost-effective way to turbo-charge your savings rate, so you should almost always try to maximise your employer’s contributions. (Ideally via salary sacrifice).
Locking more money away for decades probably won’t come easy if you’ve been a spender all your life.
At least as an oldie you’re closer to the age where you’re allowed to get your hands on the money again…
Increase your salary
I hear you: no shit Sherlock:
“Earn more money so I can save more money. Why didn’t I think of that?”
Understood. But it’s worth a second reminder that how much you can feed into the hopper of your retirement investing engine is what will largely determine what you can spend in retirement.
Maybe you planned to coast as a team leader rather than pushing hard to become a department head?
Or to stay in a steady public sector job, rather than following your former colleagues into the tougher but more lucrative private sector?
Obviously I don’t know your work situation. The permutations are endless.
My point is just that easing up and retiring early isn’t on the horizon for you. So maybe knuckle down and work harder instead?
Think of it as the bill coming due for all that spending you did 20 years ago…
Invest more in risk assets
Okay, we’re heading into more controversial territory. But if you can stomach the extra volatility, then it might be worth running your portfolio a little hotter in the hope of bigger gains.
What would this look like?
For a passive investor it means a larger allocation to equities – such as your global tracker fund – and holding less in defensive assets like bonds, cash, and gold.
For example, instead of the industry standard 60/40 portfolio split between equities and bonds, perhaps you’d go 75/25 instead.
In theory, you can expect (but not be certain) to earn higher returns over the long term with a higher allocation to equities.
The price you’ll pay will be a bumpier ride – and the potential for unlikely but possible lower final returns. (Here’s how that could happen).
Remember: the market doesn’t care about your pension predicament nor your hopes for higher returns.
Markets will certainly crash from time to time – in the worst case right as you retire – so do keep the riskiness of your portfolio under review as you get older and your pot grows.
Use leverage (but only via a mortgage)
This is even riskier again, and definitely not for everyone.
But if you find yourself in your early 40s, say, with inadequate pension savings when your ‘What About My Retirement?’ lightbulb goes off, then gunning for expected equity returns of 6-10% (hopefully) and tax relief in a pension may make more sense than paying off mortgage debt costing you 5%, say.
There’s a panoply of options here, from choosing not to make overpayments on a traditional mortgage to switching to an interest-only option, to remortgaging to extend your mortgage term.
All these paths have downsides. Such risks are what ‘pays’ for the potential upside from getting more money growing in your pension for longer.
I’ve written a lot about these pros and cons before. And like I did then, I’ll stress again that paying down a mortgage ASAP is also a fine strategy – even for late starters. You can always go on a massive savings push once you’ve cleared the mortgage. Even if it’s not the financially optimal path, clearing your debts may be more motivational for you. That matters!
I’d certainly urge you to reject any other kind of debt when borrowing to invest.
Mortgages are low cost, they buy you somewhere to live, and they’re not marked-to-market, so you won’t face a sudden cash call during a stock market rout.
Other kinds of debt are much more expensive and/or risky.
More radical ways to boost your retirement income
Is amping up the conventional approach not moving the dial for you?
Have you left it so late – or are your ambitions are so big – that you need more money than 20 years of diligent plodding can possibly deliver?
Let’s run through a few more disruptive alternatives.
Keep working in retirement
Maybe you can’t hack the rat race anymore in your late 60s, but you could live with doing a few more years of lower-stress work?
So-called ‘BaristaFIRE’ involves earning a bit through the sweat of your brow or muscles to top-up the income from your retirement portfolio.
Like this you can survive with a smaller retirement portfolio.
It takes a six-figure capital sum to generate £3,000 to £6,000 a year in retirement (a wide band to reflect the vast range of starting points, end points, and all the rest).
So earning say £10,000 a year from part-time work can make up for a lot of missing invested money.
But I probably wouldn’t work at a coffee shop or similar, if I’d been a high-earner in my main career and money was my main BaristaFire motivation.
Most Monevator readers should instead pursue part-time or consulting work in the same vein as their lifelong profession. Doing so will maximise the kerching!-to-effort ratio.
Start a side hustle
I believe everyone has a passion, hobby, aptitude, spare bedroom, or the free time to make £5,000 to £20,000 a year to supplement their main income – without the risks of quitting work to start a business.
You may disagree, which is fine but is also perhaps why you’re behind on your retirement savings…
The truth is options abound and I can’t list them all here. Be creative, test and iterate, and back yourself.
- CNBC’s Make It videos are a great source of inspiration.
The better pushback is that for a high-earner, it’s not worth messing around with side hustles for £10,000 a year when they are earning £100,000+ in their day job.
And I agree. Such people are probably better off getting promotions or doing more overtime.
But for the average earner on £35,000, say, the extra cashflow of £5,000 from a side-project can go straight to the bottom line to massively boost your pension savings.
Risky business
Of course if you want to make really big bucks then starting a proper business is one of the best ways. Perhaps the only way for most for us.
But that doesn’t mean it’s easy – or in fact less than unlikely or near-impossible. (Beware survivorship bias!)
The risks vary. If you’re trying to create a start-up software business, say, or to launch a restaurant, then your chances of success are low.
Data suggests 90% of startups fail.
But if you’re an established architect wanting to set up your own practice doing what you already do and with an existing book of contacts, for example, then there’s surely less risk of outright failure.
Either way, your workload goes through the roof when you run your own business.
By all means be an entrepreneur if it’s your life goal. But I wouldn’t quit work to start a business to try to fix my pension pot.
Invest actively
Some active investors do beat the market. A handful even over the long-term.
Warren Buffett, I’m looking at you.
You’re not Warren Buffett and you haven’t got much chance of finding the next Buffett, either.
But if you can – or if you have edge yourself and so can pick your own stocks to beat the market – then by definition this will increase your long-term returns.
Perhaps there’s a case for investing into a few previously proven but out-of-favour active funds that might recover over the long-term, if you really want to roll the dice. Say with 25% of an otherwise passive equity allocation.
Examples as I write could be investment trusts like Scottish Mortgage, Finsbury Growth & Income, Pershing Square Holdings, and RIT Capital Partners. These funds have all compounded money very well over the long-term but are more or less in a funk right now. And they all sit on big discounts.
To be clear though, there’s zero guarantee that these or any other active funds will beat the market again in the future.
And needless to say you should not take my top-of-head list as any sort of investment advice. Do your own research!
Remember: you’ll probably do worse if you invest actively. You’re unlikely to beat the market and you’ll pay more in fees for trying.
But there’s always a chance… so onto the list it goes.
Broaden your investing horizons
Some ways of making money sit between investing and running a business.
Moves like investing into a family or friend’s franchise business, running a multi-unit buy-to-let portfolio via a limited company, or reserving property off-plan in the hope of flipping it for a profit later.
These are idiosyncratic investments where the outcome will be about your aptitude – and luck – rather than what the S&P 500 does.
Again, possibilities abound. I’d suggest looking at areas close to your own professional expertise. You might have some kind of edge or insight there.
For example, if you’re a dentist then perhaps you know there’s a need for a new multi-practice building in your local area? You could be part of a consortium that gets it built and occupied.
That sort of thing. Good luck!
Back a wildcard
There’s no end of other high risk, high reward ‘opportunities’ out there.
And yes – I’m lifting my fingers off the keyboard to put ‘opportunities’ into air quotes because one person’s reasoned speculation is another person’s reckless gamble. If not a borderline scam.
Into this bucket we might put everything from punting on cryptocurrencies to extreme concentration into just a few company stocks (putting it all into nVidia, say) to investing more than a small percentage of your net worth into a handful of private or crowdfunded start-ups.
I would define this category as anything where if a hundred of us have a stab, 90 of us will lose some or all our money – or at the least lag the market in the case of listed shares – but 5-10% might see huge returns.
So as the man once said: “Do you feel lucky, punk?”
Personally, I would again at most ring-fence a portion of my assets for such antics. Maybe a maximum 10% allocation.
That way if I did pick a winner it would meaningfully move the dial, but if – as is most likely – it goes tits up then I’m not too far further behind on my goals.
If you say “No way, not touching this stuff with a bargepole” then I can only applaud your good sense.
Beg, borrow, steal… or marry
We all know other ways to get rich that aren’t written about on worthy websites like Monevator.
And as an upstanding citizen I don’t recommend any of them. Besides the moral issues, do you really want to risk your reputation or your liberty for the sake of a slightly comfier retirement?
Perhaps marrying rich is the exception. But I’m the wrong person to ask about marriage, as I see mostly risks…
Maybe read some Jane Austen!
Better late than never
For some of our regular readers, this post will have seemed like one long ‘obviously’.
Such people began saving and investing when they were very young maybe, or they’re on the other side of work already and enjoying the fruits of their labours.
Good for them!
However I do regularly hear from people with proper jobs and responsibilities who’ve no idea where they stand or what to do about their pensions – and they’re sometimes only ten to 20 years from retirement.
If that’s you, then don’t panic. Follow the links in this article, learn more, and begin to create your plan.
For most non-investment crazed would-be retirees, I’d suggest stick mostly (or entirely) to the sober tactics, with maybe an added side hustle.
Beyond that you could perhaps make a modest 5-10% allocation to a few out-of-favour trusts or to very carefully chosen long-shot bets in the hope – but not expectation – of faster gains.
But you must figure out what works best for you.
Who knows? You might even have fun doing so.
I’m sure I’ve missed out a few possibilities above. Let me know in the comments below – and do tell us your story if you closed the gap in your retirement savings later in life yourself!
Cheers TI. For some, maybe the most practical step would be to pay more attention to the employer pension contribution? I imagine there are plenty of people who look no further than the headline salary when considering moves, rather than the wider benefits package. Certainly worth paying attention to in debates about public vs private sector.
@tetromino — Good point, I should surface that explicitly. Will add a bit now before sending out the email. Thanks!
For the love of God, if you must eat pet food in your dotage, go with dog food, not cat food. Have you seen what they put in cat food?
> But person B will need to save much more – and/or for much longer – just to catch-up.
More, yes. They will probably be earning rather more than their younger self. If they can reduce their outgoings there’s more tax they’ll be saving of what goes into the pension.
Anyway, I’ll stand up as the poster child for the Johnny-come-lately non-recommended way. Barista-FIRE was what I was frightened of. It was a rough experience for three years, and I had good luck to be doing it after a market crash. And I survived/eventually thrived over a decade of active investing, though arguably tutored by Monevator in the early days. So under some circumstances you can get there from here.
While I did manage to avoid debt (apart from mortgage) from my early twenties, it absolutely beats me how you get to save money when you’re young. Perhaps living in London through my twenties was my mistake, and perhaps living away from home was another – it was looked down on in the same way as Thatcher’s view on buses and how folk play the mating game under their parents’ roof puzzles me.
The general point remains. Young people just don’t usually have much spare money – they’re earning less at the start of their careers and their outgoings are higher as they establish themselves. I didn’t start saving for a pension until I was 29 and I cleared the workforce in my early fifties, because I couldn’t stand what it had become.
Re investing, think key point is just make a start. Initially it may seem pointless but get the saving going on an automatic basis and take any employer pension contribution you can.
Biggest risk is divorce. Choose your partner carefully ( or just do without). My charm and good looks meant I swerved that one but boy have I seen some financial casualties. Some were emotionally upset too.
However old age care fees are just an apocalyptic horseman…have an extra £300k for those.
This is me at age 49. Was always conservative with money but on divorce found myself starting over. Its a mix of investing hard (over 30% of income) and running a 85/15 equities/bond portfolio using SIPP and ISA. The result is I’m back on track with 11 years to go (I have a serious illness so want to retire early). The risks of a poorly timed downturn are clear though – been doing a lot of research on sequence risks recently. It shows it is doable though, and have to say Monevator really helps.
If you’ve left it ‘too late’ to invest then it’s never too late to turn that around. Do what you can.
But if it’s still not enough, then how can you make what you do have go further?
Easiest way is geo arbitrage. The UK is a high cost of living location.
It’s a relatively rich (but IMO still deeply dysfunctional) nation with a lot of poor people and a few rich ones.
And when GDP per capita is around £35,000 p.a. then nothing is cheap and everyone wants a piece of what’s yours.
So why not just up sticks altogether and move to where your money will buy you 2 to 3 times as much?
If you think that you can’t do that because of your relatives/ friends/ the language barrier, then of course you can.
Do it for yourself and for the life you deserve, but have been afraid to reach for.
Even in Europe, there are still Low Cost of Living locations where tax is minimal and where £100k will buy you a fine house and a little over £20k p.a. will give you a decent standard of living for a couple.
Check out the example of Bosnia. Totally under the radar:
https://youtu.be/vxVuFFAhHsQ?feature=shared
And that channel/website has plenty of other ideas too:
https://thewanderinginvestor.com/blog/
As does this one here:
https://youtu.be/KXf38mC3puE?feature=shared
And here:
https://youtu.be/ebIzq3-rDSw?feature=shared
The other thing you could do is accept you’ve messed it up, put £2880 in your new borns JSIPP and at least they won’t suffer the same fate?
So who do we know who has happily relocated to Bosnia?
I’m highly suspicious of the geo-arbitrage is easy brigade. Like the cost of living is the only variable in quality of life. Someone would actually have to have done it in order for me to take them seriously. But in that scenario, I would be all ears!
@Rhino: what about the millions of Brits who retired to Spain and Portugal since the 1970s? No longer such LCOL destinations now, for sure, but just after the fall of Salazar’s successor and the death of Franco in 1974 and 1975 respectively they very definitely were. Do you really think we just happen to be born into the best overall retirement location we could have been born into? I doubt it.
Re: Geo-arbitrage, let’s not forget the more modest option of doing it semi-local, as exemplified by one of our readers:
https://monevator.com/fire-side-chat-domestic-geo-arbitrage-made-it-possible/
@Ermine — Thanks for chiming in, was hoping you would! You are indeed UK personal finance’s poster-man for starting late and getting out. 🙂
Absolutely, I’d talk to one of them to get the lowdown. Funnily enough my uncle is currently moored up in Portugal semi permanently. In a similar vein to my JSIPP comment I’m trying to talk my kids into marrying Norwegians.
@Delta Hedge #6
London is a HCOL location. Fixed that for you 😉 OK, fair enough, a few other UK cities, which tend to be peopled by highish paid young professionals, Oxbridge, Bristol. Those poor people ted to reduce the COL somewhat. Avoid the extremes, natch.
I’m not knocking geo-arbitrage, but it should be said that it’s harder as you get older, and while barista-FIRE sucks ending up Billy-no-mates in an alien culture where you don’t really grasp the lingo probably sucks in a different way. It’s not just your personal finances where it’s harder to change things as you get older. I have been plugging away at Duolingo French for nearly a year, while there is some progress and I am probably ahead of my O level French progress is glacial. I can sort of follow the radio news, interviews with real people still sound like line noise to me.
Sometimes you gotta do the best with what you have to hand, I agree, but life is about more than money, it is also about your setting. I’m sure Bosnia is charming, but geo-arbitrage works within the UK too – and particularly within the US. There’s some argument it’s worth moving after you retire, since proximity to high-paying work and/or good transport connections to it do raise the cost of living massively. Also high population densities and work opportunities are usually detrimental to natural beauty.
I agree wholeheartedly with the theory of “Do you really think we just happen to be born into the best overall retirement location we could have been born into? I doubt it.” , it’s just that in practice you are also shaped across your lifetime by where you live. Arguably the best time to deploy geo-arbitrage is in your twenties when you have least baggage.
Reminds me of the book, ‘the almost nearly perfect people’ by Michael Booth. Synopsis is that the scandi countries regularly top the bill in happiness surveys and quality of life etc. but this is from the perspective of the native population, with the ex-pat experience being somewhat different and not so rosy. It’s worth a read actually. FIRE blogs also peppered with failed emigration experiments – grass is generally greener type fallacies. I get the feeling successful geo arbitrage is quite a tough one to pull off in practice, especially, as ermine notes, for those of more advanced years. Would agree, domestic geo arbitrage a much simpler trick.
@ermine – I suspect that Duolingo will turn out to be the Sinclair C5 to Tesla’s Model S.
What the UK’s many language barrier challenged potential geo arbitrageurs are waiting for is a fusion of Google Translate with the successor to Google Glass and the Apple Vision Pro.
Imagine a fully wearable and weatherproof rechargeable device which takes spoken words and written characters in any language and translates them immediately, seamlessly and automatically into any other.
And it needs to retail for below £1,000.
This is far more near term likely I think than Tesla’s level 5 FSD EV ‘robotaxi’, yet alone Musk’s mad Mars’ plans.
The Babel Fish of Douglas Adams’ lore may be near to hand:
https://youtu.be/iuumnjJWFO4?si=0TFOkETmWgqTfHSN
@Delta Hedge
Imagine a fully wearable and weatherproof rechargeable device which takes spoken words and written characters in any language and translates them immediately, seamlessly and automatically into any other.
No thanks. I don’t routinely carry a mobile phone with me, never mind a full-body robo-suit.
All Watched Over By machines Of Loving Grace. Curtis, not Brautigan
> And it needs to retail for below £1,000
Yup. For that price it’ll whisper advertising sweet nothings to you all the time, I’m sure, wraparound Facebook. A metaverse, indeed. Each to their own.
I am so old I remember what the term IRL means 😉 And I read Asimov’s The Feeling of Power in my teens. You are more than welcome to say OK Boomer but if that’s the price of entry I think it illustrates the problem of geo-arbitrage for those at the RE end of the journey.
@ermine: ideally it’ll all fit neatly inside a jacket pocket and comprise a) wireless ear buds with microphones to take the foreign spoken words and play it to you in English, b) glasses with LED sized cameras embedded to OCR scan foreign written words and display the English translation on the inside of the lenses and c) your mobile phone which you’ll just speak into and its speaker will then translate into the foreign language, in your own voice should you chose. It might sound far fetched but the only piece of Star Trek tech which came to pass (only more so) was the Communicator, which became the mobile phone, and now the smart phone. And on the subject of wrap around Facebook, this from Investing.com only today: “Meta climbed Wednesday after debuting its first augmented reality glasses at its annual connect event”. The future is closer than you think. As Dylan said back in day, ‘the times they are a changin’.
@DH (13)
I wouldn’t be too quick to knock Duolingo. I have studied German slowly and painfully the old-fashioned way over the years. I am involved in a German conversation group and have been impressed on more than one occasion by the competence of newcomers who have only learned via Duolingo.
@DavidV: These investors think Duolingo could be one of the best investments out there:
https://open.substack.com/pub/atmosinvest/p/top-4-favorite-stocks-to-own-forever
Then again, since subscribing to the free tier for a score of investment Substacks, I’m now daily bombarded with ‘the 25 best companies to hold forever’ type lists, which if I added them up probably more or less make up the investment universe and thereby inadvertently make the case for index tracking 😉
You need to frighten people into saving for their old age. Just ask them “Do you want to reach your sixties still dependent on other people paying for your clothes?” That should do the trick.
On taking on more risk, leverage + active investing, this is double edged:
– Using volatility and permanent loss of capital as metrics here, moving up the risk scale from index tracking equities to say single name stocks or sectors and regional bets usually doesn’t work or more pros would do it and more retail investors would lag less.
– But Consumer Staples and Low Volatility stocks as groups do benefit it seems from more return per unit of risk, defying the efficient frontier. Historically Private Equity has outperformed on this measure but that seems not to be the case now.
– Leveraging a low risk asset can deliver better risk to return than moving to invest in a higher risk asset. You really need cost of carry to be low to negative – i.e. the cost of finance is less than the net (post any tax payable) paid out yield on the assets brought.
– Contrarianism tends to be a fail but sometimes it wins. But you have both to be right when others are wrong and in a way where you get an additional net return. This is harder than it sounds. For every successful contrarian you do hear about there are so many more who failed who you never hear from.
– Then again there are always contrarian opportunities. From the Daily Telegraph’s money pages just this morning “Had you invested £100 in an index of emerging market shares in September 2009, you would have £121 today. The same amount focused on China itself would be worth just £95. Had you instead put your faith in a global stock market recovery over the next decade and a half you would have grown your £100 to £324. And if you had simply bet that America would bounce back to regain its economic leadership, your £100 investment would today be worth £539.” And, for balance here, our own @TI in the MV piece “A buying opportunity has emerged in Emerging Markets” said (back on 11 December 2013): “The S&P 500 has beaten the iShares emerging markets ETF by more than 30% in the year to-date.Will that stellar level of outperformance continue? Maybe. Will it be replayed every year for the rest of the decade? I’ll go out on a limb and say: Not on your nelly”. Back then 11 years ago I nodded to myself in agreement with that as how could the US just keep outperforming year after year after year? But it did. In and around 2012 there were actually a couple of pieces out there saying that US tech was quite cheap compared to then recent (1995-2000 and 2004-7) historical valuations and its growth prospects. If you’d gone with that sentiment; then, from 30th December 2011 through to 3rd January 2022 (buying the NASDAQ index on the last trading day of the earlier year, and selling on the first trading day of the latter), you would have made 19.79% annually in dollar terms, and more still in sterling. So, being a contrarian (in that example case, a tech uber bull) can pay off, it’s just statistically that it tends not to at the aggregate level.
@ermine (#3)
“For the love of God, if you must eat pet food in your dotage, go with dog food, not cat food. Have you seen what they put in cat food?”
Why pet food at all? Even buying in bulk, the dog food we get (just to be completely clear – for our dog) is just over a £1 a tin, whereas Aldi baked beans are 41p, tinned soups 61p, and a jacket potato 24p. OK, Aldi’s dog food is a bit cheaper than what we buy (~50p in multipacks), but our dog’s innards have become a bit fussy as he has aged.
Not wanting to take away from your point about jumping ship to a better paid job, but I’m not convinced that the poor public sector, prosperous private sector schtick is still true. Thanks to outsourcing the line between the two has become very murky. The people delivering services are often agency staff while the office staff are permies on gold plated DB pensions. To boost your pension it might make more sense to move from private to public.
RE: Emerging markets versus the US, oof, yes, but I’d take that side again. Especially as I didn’t forecast the US market wouldn’t beat EM, I just didn’t think it’d continue to thrash it. Which was wrong, but rational — then and now I’d argue.
I’ve mentioned before that I published elsewhere on the Internet in 2011 or 2012 a two-part series on why investors shouldn’t write-off the US stock market, especially tech shares. It is a massive ongoing gripe for me that these articles (along with most others on that site) are no longer available. Not just for bragging rights (though there is that) but because I’d love to link to it to show that — hard as it is to believe theser days — there was a time when the mighty US market was out of fashion, and it wasn’t even that long ago!
I look at markets today and I too struggle to see the tech-lite Rest of World keeping up with US exceptionalism. But then I struggle even more to imagine another near-15 year winning streak for the US. Doesn’t mean it couldn’t happen of course — there are underlying reasons why the US has done so well, especially in tech — but as we’ve discussed before there’s usually a medium-term Ying and Yang to US versus the rest of the world’s equities (albeit with the US outpacing the field long-term).
Re: DuoLingo, another shareholder here! I have a small position that’s better than doubled and every week I chant the name ‘Bessembinder ‘ three times and will myself to hold onto it. 😉
Nice new interview with the CEO here:
https://sherwood.news/business/duolingo-ceo-luis-von-ahn-q-and-a/
@Azamino – You could well be right — as I alluded to in the article I can hardly get into even broad brush discussions for earning potential in different industry sectors, let along people’s specific careers.
I think your helpful comment reinforces that people looking to catch-up need to take a holistic view of what they’re trying to achieve with their pension, and what the best opportunities are for *them* specifically. 🙂
@TI
“…I published elsewhere on the Internet in 2011 or 2012 a two-part series on why investors shouldn’t write-off the US stock market, especially tech shares. It is a massive ongoing gripe for me that these articles (along with most others on that site) are no longer available.”
Have you tried the Wayback Machine (https://web.archive.org/)? I find that site extremely useful for finding deleted material (or deleted domains).
@DH accepting that one shouldn’t always infer the general from the particular, I am disturbed both by the capacity for AI to bullshit on all cylinders along with the tendency for AI fans to believe in its ability to transform the world.
I have an installation of BirdnetPi in my back garden. It’s quite successfuly identified that there are birds in the garden, it has achieved 100% fail, confidently (> 80%) IDing this exotic crew, I’d have twitchers on the lawn by now 😉
I have put the real IDs in brackets, formed from listening to the recordings AI used to identify:
Northern Slaty-Antshrike (robin alarm)
Lark-like Bunting (robin alarm)
Common Poorwill (some finch followed by magpie)
Lark-like Bunting (robin song)
Indian Roller (jackdaw)
Two things are wrong here. One is these are acceptably clear recordings, some finch is my lack of detailed knowledge but the others are certs. This damn thing knows the lat/lon of where it lives, if I went to a pub with a bunch of people who had the slightest knowledge I’d be laughed out the door claiming the original list. I haven’t got the faintest idea of what Tensorflow Lite is which seems to be the AI guts of this, but the breathtaking confidence in total error is quite impressive, particularly given prior knowledge.
I will piddle with this to see if it can be sharpened up, but the fundamental Dunning-Kruger problem is one I’ve seen in a lot of AI. It’s there in the AI ‘assistance’ Wordpress offers, which can totally change the meaning of a sentence with blithe assurance this is better.
I used perplexity to try and see if two electric blanket controllers were equivalent. It hemmed and hawed, I read a page of random waffle and was none the wiser; its greatest service was locating a picture of the connectors from which I inferred it was worth a go, and it worked.
So apart from the Isaac Asimov angle, I’ll stick with Duolingo, because from these experiences I infer using an AI babelfish is probably a great way to hurl vile abuse at random strangers in foreign countries, which you won’t realise until you get your face rearranged or a pantechnicon arrived with three tons of rice pudding when you thought you ordered a couple of bags of sugar.
There’s a fundamental problem with whizzy tools in the hands of noobs. If you have at least some idea of what the result should look like, you have some change of switching it off if it’s chuntering out gibberish.
I’m sure people will fix some of this in time, but in the meantime, emigrants/expats/whatever, learn the lingo to at least a serviceable degree. Similarly for the culture- if you are going to some Arab countries then cover up and lay off the hooch, in Thailand don’t insult the king etc etc.
@Curlew — Yes, curiously the whole URL hasn’t been archived, which is odd because it wasn’t a small website. I wonder if the site’s owner somehow barred their site from being archived legally or via robots.txt or something.
We’d also have the issue of my ‘coming out’ (which if it ever happens will be the biggest anti-climax since the Segway, but which I’d rather do deliberately versus a random link).
Moot anyway as the link’s not there. :-\
@ermine: buggy AI is going to be a much bigger issue to begin with than the “Open the pod bay doors HAL” scenario and, even if and when that scenario arrives, it’s then bad human actors misusing AI that’ll be the bigger risk, and not the creation of a SkyNet.
At the moment both chat bots and LLM assisted search are pretty crappy tbh.
OTOH, there’s some impressive stuff going on with protein folding and with combining neural nets and LLMs. Google Deep Mind was able to crack International Maths Olympiad problems for example and win silver.
Already some firms are firing human coders for machine written software.
However, it’s not where things are now, but where they will be, that really matters.
It’s overhyped now for sure, but writing off machine learning today would be like saying that the internet was going nowhere commercially in 1994.
I suspect that there’s a big market for usable, portable, real time translate. It just has to integrate seamlessly with existing (mobile phone) and future (Meta / Apple / Google glasses and ear buds) consumer tech.
@TI: I’ve got a feeling now that yours may be the articles which I was referring to above (“around 2012 there were actually a couple of pieces out there saying that US tech was quite cheap”)!
Cheap growth beats cheap value and even cheap quality IMO. So you were prescient.
EM and European underperformance is rather perplexing.
EMs got bid up in the run up to 2008, but they had already taken a massive pummeling by 2013.
Likewise, Europe was in the doldrums from the Portugal, Italy, Greece and Spain (the ‘PIGS’) debt crisis, and Cyprus was in the frame.
Those markets didn’t exactly look overvalued back then, and they really should have put in a much better performance from 2014 to date.
It’s not just relative underperformance to the US generally and American Mega Cap Tech particularly, but a rather poor absolute level of return, especially from China. Small caps and small value has also underperformed by a historically unusual margin, and over an exceptionally long time frame.
I don’t give financial advice. If (and thank God I’m not in this position) I were to be a late starter to investment then, for me, I guess that I’d be thinking then about taking more concentration risk and a contrarian active bet on mean reversion.
That strategy could, of course, easily blow up.
But if, counterfactually, I was to find myself that far behind and with so little time left until I expected to retired, then I suspect that I’d then feel compelled to try something radical.
That’s not the best way to invest as fear and desperation cloud judgment as much as greed and hubris.
@Alan S #20 I wasn’t advocating eating pet food – there was a novel Monevator once recommended that had ‘the dog food years’. It’s more TA we need to worry about, he used to favour dog food in times of fiscal distress but I fear he has a darker view of the financial future since he has cited eating cat food as the marker of epic fail in a portfolio 😉
@DeltaHedge #26
Worked for me 😉 I read this dark transmission on here and at the end of that month had a meeting with a line manager and saw the writing on the wall. I was not the Right Stuff and was wasn’t prepared to do what was necessary to become it. Had I know that line manager was desperate because he had a new baby with his new second wife I would have used that against him, it explained the intensity of the discussion since he needed bodies. Later line managers were puzzled as to exactly why I inferred a one-way ticket.
But once you emotionally decide the only way out is to pull the big red ejector handle, you can’t stop the hand reaching for that sucker. I exited the middle class and lived on almost minimum wage for three years, a damn sight eaiser if you own your house with a vestigial mortgage. The difference not spent attracted 40%/32% tax win which is more than that percentage on the amount foregone. It’s not the greatest amount of fun I’ve ever had. But as we observed in a Skype call with some ex-Imperial guys, the privilege of owning your own time and deciding what you will do with this day never gets old, even after a decade.
Never underestimate the financial firepower of a desperate old git in the endgame at the peak of his earning power. I have been cynical about the value of compound interest, yes, I’ve seen it but only a decade after retiring. CI plus passive investment expected returns is ion drive, not Saturn V.
I did have luck on my side inasmuch as the reason my job went bad was partly because the markets had been shot up in the global financial crisis. That is a terribly good time to start investing, market timing with knobs on.
You didn’t have to get much right then, but you did need to start, and I did. I didn’t really expect it to work, but I could recognise a chance worth taking
Your FIRE journey was an inspiration to us all @ermine 🙂
Ion drives beat chemical rockets every time.
Investing Saturn V’s can blow up on the launch pad like Putin’s recent failed Sarmat ICBM test.
Late to the game invesors who are looking to try and play catch up before their retirement beckons should first check out the outcome of the 1969-70 Australian mining bubble or the fate of once all conquering, and much pumped and dumped, alt-coins like Verge/XVG, whose rollercoaster ride Coindesk summaries thus:
“On Dec. 23, 2017, the coin hit highs of 30 cents, a staggering 1,384,300% increase from its all-time low…on Feb. 5, 2015. In the wake of the crypto winter of 2018 and 2019, the coin fell to as low as just under 1 cent in March 2020. It wasn’t until 2021, when Bitcoin skyrocketed again, that XVG reached 6 cents in May. The crypto market crashed shortly after… The coin never fully recovered, and by June 2022 had fallen to $0.004. Yet, even that low price marks a staggering 188,149% increase from XVG’s all-time low of $0.000002 on Feb. 5, 2015.”
It’s still at $0.004 today, now nearly 7 years on from, and 98.7% down from, its 2017 peak. And in the crypto winter of 2018-19 it was actually at one point down 99.4% from the All Time Highs.
It was at that peak that it first attracted attention and then drew in the newbies, as if attracted to a naked flame.
The results thereafter were all too predictable, and indeed predicted at the time.
I visited a beet sugar refinery once and discovered a fact that took my interest. What do you think they do with the protein from the beets? Goldfish food!
Bugger cat or dog food, eat vegan goldfish food.
[Correction: Spotted that Coindesk have messed up their maths. The lowest (2015) XVG price was actually $0.00002167 (so they’ve erroneously added an extra 0), which in turn means that the 188,149% figure should be 18,814.9%. The cycle low is $0.001427, which is more than 99.4% off the ATH, which elsewhere is more accurately given as $0.29725. The point remains, crypto is nuts, and alt-coins are a no touch for most (/sensible) investors].
Great article as always 🙂 I started actively investing when I was around 45, after taking a closer look at my work pension and then wondering what I was going to when I retire and it looked scary to me. I started with increasing my pension contributions and sorted out my monthly budget, which then started me looking at ISAs & passive investing with the help of this great blog and a more active portfolio using Investment Trusts.
I’m 51 now with no debt other than what’s left of my Mortgage, I can at least see a path now and feel a lot more confident in taking a little more risk I still think I’ll be working when I’m 63 ish I think with a view to working part time. Hopefully by then I’ll have paid off the house
When I see examples like the Captain Sensible one I kick myself for having missed out. Then I remember that I did do some moderately stashing of things away around about 29-30 but the problem was gains were eaten up by crap adviser charges (I think you had to go with a broker to buy a S&S PEP at the time) and mediocre funds so got nothing like the 8% example. Plus life was happening so I didn’t do it consistently and did the usual getting spooked by poor sequence of returns when it came to putting more in. The folly of yoof and all that.
Only in my more reccent & more focused years been able to access almost nil cost platforms and the real low OCF funds/ETFs to plump up returns and really get past the worry aspect.
Only started seriously investing late in day, unfortunately, a few years ago due to getting fingers burnt some 30 -40 years ago so consequently put me off
Long story but medical conditions forced me to finish work early around 50 – had started in my earlier 40’s
I think many people over estimate what they’ll need, how well they are likely to be – regardless of any healthy lifestyle and how long they’ve got left – which is likely better than not enough but puts you under major stress at times, many think they’ll be running around at 90 or 100 when actually not that many are – and if still alive certainly not spending much (unless paying for your care home costs) or getting out much. Holidays/cars likely a distant memory – that’s if you still have a memory at all
I know they are investing focussed but many finance blogs I have read on this subject make light of, and seem to suggest, an early death is quite the advantage in that the portfolio won’t run out (regardless of withdrawal rate) Once you are faced with that prospect I can assure you that your pot isn’t your main concern and you would much rather live longer with not so much rather than vice versa
As some others said I don’t find geo arbitrage (or in plain english “moving to somewhere cheaper to live”) always much of a good option either for most -tends to be those in later life or at least middle aged that would consider it and more often those looking to do an “escape to the country” type thing as generally by then had enough of cities and prefer a quieter existence
But this is also when medical conditions tend to crop up, as mine and many others I know did – then you need to have medical facilities/main hospitals with A&E at hand
Not always a period of your life when you want to be uprooting to miles away – which can often be the case if you require a large decrease in property costs – and having to start again, maybe no family around
Also you can only achieve a large saving on property cost if you are already living in a fairly highly priced area but if you live in north then good luck with making much from that (unless you are also downsizing by a lot)
I’ve known many come back as well after moving to Aus/NZ/other parts of UK – as the grass is not always greener as they believed it was – especially if you don’t really know anybody there
Also when older you tend to delight in moving house with all it’s hassle and ramifications about as much as going to Glastonbury every year
I agree with others divorce is a big risk and sometimes don’t even have to be married – the number of people suggesting to invest monies in partner’s ISA/pension if used all your allowances to save tax seems quite ludicrous to me, no matter how safe you think your relationship is – people can change markedly over time and even the safest can and do go sour. Also what about if they die first and not married and maybe no will – that would go to their family – not to you but some do it – presumably think it won’t happen to them – is that the “not me gov” bias?
^ @dearieme 30
Was it Wissington Sugar Factory?
Great article. One piece of advice is focus on where you are investing as much as how much do you put into a pension. Too many workplace pensions have a ‘default’ allocation which typically are not the best for performance. Invest passively, diversity your portfolio, keep charges low and that should put you in good stead. Don’t try to chase todays winners (which are tomorrows losers). To get rich quick you do it slowly….
I retired at 60 with way more money than I needed but still enjoyed part time consulting for the first five years of retirement. I was able to earn six figures working only about 8 hours a week. But I also watched other engineers fail at consulting and it was easy to see why. Many engineers move into our management functions later in their careers. And their technical skills atrophy or become outdated. Even though I ran a billion dollar corporation I still kept a couple of tech responsibilities that kept my engineering skills sharp and current. If you plan on consulting after retirement that is a must.
I was certainly late to investing, not starting until after I’d retired. This was an easy option as I’d joined the Civil Service as a graduate, partly because of the job for life, plus the “non-contributory” pension then advertised. As a middle manager I was lucky to spend most of my career doing roles I was competent at and interested in and looked forward to that decent pension without worrying about retirement. Rather than invest, we just bought properties we could do up in turn, concentrate on getting our garden just as we wanted it, before moving onto the next one for a yet larger garden. However, the anticipated pension prospects shrunk as the post financial crash curbs on public sector pay persisted. Then the coalition government decided we should pay more for our “non-contributory” pension, up to 8% of salary, an amount that simply swelled Treasury coffers as there’s no actual fund for such money. Taking into account the annual season ticket, I found my net pay after that going down. Even now, the published gross salary for my former grade isn’t much above where I finished up. Luckily for me, the coalition government was looking ditch many of my grade and I took the plunge in 2012. The mortgage remaining was quite sizeable but we’d already decided to sell up and shift to southern Scotland, less downsizing, more “down-financing”. Same size property, but half size garden. Domestic geo arbitrage in action.
Initially I ignored investing as my one previous toe in the water was a small PEP invested in Euro stocks in 1999, which just went sideways for years. Only later, once interest rates started to go right down and peer-to-peer start to look riskier did I consider the stock market, inching in via Fundsmith and Vanguard VUSA in 2018. Just before COVID I discovered Monevator and received the “Don’t f***ing sell” message just before my early gains disappeared. But I hung on in there.
Since then, with the help of TI and TA, I’ve diligently continued to accumulate my growing snowball, with my partner’s very successful passive portfolio and my much more interesting but perhaps less lucrative mainly active portfolio. I’m grateful not to be someone who relies on the success of their investing, but can instead develop it as a hobby to pay for improving our latest abode, develop our latest garden and cover our holidays. I’ve made my share of mistakes and learned an awful lot in six years, but hopefully there’s no prospect of being reduced to cat food (or indeed cats) while the UK manages to avoid true economic disaster. Thanks then to Monevator. While I may not merit Mogul status, you certainly well deserve my Mogul sub.
@lenahan35. A definite maybe: it was in East Anglia but I’m not sure it was that one. It could have been Bury St Edmunds but that’s a maybe too. It was decades ago and my memory is unclear but I do remember putting my hand into a bin of product, sniffing it, and being instantly transported back to boyhood. (Like wot that French cove wrote about searching for his lost cat. If you’ll forgive a boyish joke.)
As an exercise in squeezing value out of almost every stream of material in the plant the whole thing was mighty impressive.
@No Longer Civil — Thanks for sharing your experiences and even more so for taking out a Moguls subscription. Hope you enjoy many happy years of tending to your garden and your portfolio! 🙂
@Jon and others — Just a quick thanks to everyone who shared their experiences of starting late with investing (and please do add yours if you’ve not already).
Some Monevator pages are still widely-read years after publication. And hopefully these comments will provide some inspiration to anyone desperately Googling for a way to turn things around in the afternoon of their careers!
I was interested to see the several comments about divorce. Back in my older and bolshier days I drafted a post about why you should not get married, but like a similar one on the real cost of having kids I shelved it. Perhaps I should see if it might be salvaged… 😉
Also, lots of interesting detail there in your comment in particular @Jon. Could I interest you in doing a FIRE-side chat interview?
@Investor I think the cost of having kids is grossly overstated, maybe more so than cost of care fees. Circle of life – bring up children, nurture them, the roles will reverse (suspect daughters would be better, but sons aren’t a total loss…)
Interesting to see how the tone of ‘Millenial Revolution’ has changed since the writers have had a child.
^ @dearieme 39
A close family relative was a senior factory manager for British Sugar for many years until retirement so you may have crossed paths. He certainly had time at most of East Anglia’s factories including Wissington, Bury St. Edmunds, Spalding, King’s Lynn and Cantley amongst others around the country. A lot of the old UK sugar factories are of course now all closed down.
Wissington is now Europes biggest sugar factory and a pretty impressive beast. They do indeed extract every last drop of value as you suggest. Off the top of my head I think Wissington is the UK’s largest cannabis producer and until recently also grew a lot of tomatoes too in the surrounding greenhouses.
“until recently also grew a lot of tomatoes too in the surrounding greenhouses.” Bingo! That might have been it. Even after raising steam the exhaust from the gas turbines was warm and packed with lovely CO2 plant food. Off to the greenhouses it was sent.