Weekend reading: When did you last change your mind?

What caught my eye this week.

A key trait as an investor is the ability to change your mind. That’s because we’re all wrong about stuff, all the time.

I don’t mean you that should flip stocks on a whim, or pick-and-mix this season’s asset allocation like you’re choosing a t-shirt for the beach.

Staying power is crucial, whether you’re a passive investor or you’re chasing market-beating returns for your sins.

But being able to change your mind is equally vital.

It’s estimated the best stock-pickers only get about 60% of their calls right.

The high-speed traders at Renaissance Capital reportedly generated billions by being right just 51% of the time.

If you want to make money when you’re so often wrong, it helps to admit it.

What would change your mind?

I love the Financial Times and I’m a very satisfied subscriber.

But boy have its pundits been wrong about Tesla.

For the better part of a decade I’ve read snarky comments in the FT about Tesla’s valuation, its shareholders, and the showmanship of Elon Musk.

Some concerns were valid, sure. But when during Tesla’s ascent should the skeptics have upgraded their thesis?

When Tesla shipped its first electric car?

Maybe when it rolled out the mass-market Model 3?

Or when Tesla turned profitable?

Or when it achieved its goal in 2020 of producing 500,000 vehicles in a year?

Now Tesla is valued at $1 trillion. The FT covered that. But its scribes couldn’t resist joking that the new 100,000 car deal with Hertz that drove this latest price spurt was mostly about burnishing the latter’s meme credentials.

In a more balanced piece yesterday the paper conceded:

Out of the Musk limelight, Tesla has been building an increasingly solid business.

Good for them. Griping all the way to $1 trillion wasn’t a good look. But better late than never to think again.

Sinking feeling

At least journalists don’t have their money on the line.

Hedge funds have lost billions shorting Tesla stock.

It was always a dumb short – as I mentioned in my post on my own Tesla woes – because Elon Musk had super-rich Silicon Valley friends who’d said they’d back the company with capital in a heartbeat.

Some of those shorting Tesla even called it a fraud after it made what’s become the best-selling premium sedan in the world. At that point they should have admitted they didn’t understand what was going on, and stood aside.

There’s no shame in it – and it’s easier on your wallet.

Tesla has a mammoth task ahead, and even as a shareholder I agree its valuation looks stretched. But you have to appreciate everything it’s doing right before you can bet against what could go wrong.

If you don’t understand something then you shouldn’t be shorting it.

Big mistakes

All this is more easily written than done.

As a naughty active investor with thousands of companies to misunderstand, I get six things wrong before breakfast.

Yet passive investors can go off the rails, too.

Some concede they know no better than the market and so pursue an indexing approach – a noble strategy – but then call bonds a bubble waiting to burst for a decade, or shun US stocks for years, seeing them as overvalued.

One huge danger with these big macro calls is that the sunk cost of being so wrong so far makes you desperate to eventually be right to fix things. Such mind games can take your portfolio far away from consensus.

Conversely, another risk is actually admitting you got it wrong, changing position, but doing it so late in a bout of market mania that you end up taking all of the pain of a correction with little of the previous gains.

Avoiding using your feet for target practice like this is another subtle benefit of an automated approach like our Slow & Steady Passive Portfolio.

Wrong way, right turn

None of this is to say that the market doesn’t get it wrong sometimes too.

Over on his Compound Advisors blog this week, Charlie Bilello posted a great selection of times when the wisdom of the crowd proved more witless.

Of course those examples are so striking because we know how they ended.

Those investing on the way up – or down – had no idea where the story would finish. All they saw was a one-way ticket, right until the road ran out.

So for my part I strive to be ready to change my mind on a dime. ‘Strong convictions, weakly held’ is the way the cool kids put it.

If that’s difficult with investing, then take heart that at least it’s easier than with politics or as it transpires epidemiology…

Have a great weekend, and don’t forget that business with the clocks!

From Monevator

Making monthly repayments on a repayment mortgage is a form of saving – Monevator

How to improve the 60/40 portfolio – Monevator

From the archive-ator: Investing for 100-year-olds – Monevator


Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1

OBR puts permanent hit to GDP from Brexit at 4%; worse than Covid – BBC & Guardian

Deal to rescue seventh largest energy supplier Bulb in doubt – Guardian

Budget: key points at-a-glance – BBC

Budget: what you need to know – Be Clever With Your Cash

Budget: the small print – Which

Budget: how does it add up for me? [Calculator tool]Guardian

Budget: reality bites as Tories embrace big-state, fiscal conservatism [Search result]FT

Budget: millions will be worse off in 2022, says IFS – BBC

Budget: all the official policy and spending documents [PDFs]GOV UK

Crippling shortages and rising prices hit UK economy [Search result]FT

Products and services

The days of super-cheap mortgages are ending – Guardian

Games consoles, laptops, and smartphones in short supply for Christmas – ThisIsMoney

Portfolio Charts has had a spruce-up – Portfolio Charts

Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor

Junior ISAs vs Premium bonds: which wins over 18 years? – ThisIsMoney

Crypto wallet Coinbase goes offline for hours, again – Yahoo Finance

Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade

Junior Isas are ten. How much is your child’s worth? [Search result]FT

Homes for hosting a Halloween party, in pictures – Guardian

Comment and opinion

Risking, fast and slow – Of Dollars and Data

The most important chart in investing – Banker on FIRE

How to improve your finances, no matter how messy they are – The Cut

Let the market worry for you – The Irrelevant Investor

Board, not bored – Quietly Saving

“I spent 44 years studying retirement. And then I retired…” [Possible paywall]WSJ

Q&A with the author of Trillions asks: why is stock-picking getting more popular despite the evidence that index investing is best? – CNBC

Is hyperinflation on the way? [No.]Pragmatic Capitalism

Rich or wealthy? [Podcast Q&A with Morgan Housel] – Art of Manliness

How funds pick their benchmarks [US but relevant]Advisor Perspectives

The proposed US billionaire tax: worst tax ever? – Musings on Markets

Naughty corner: Active antics

15 favourite investment patterns – Intrinsic Investing

One skill that sets an investor apart is creativity – Enterprising Investor

A history of wealth creation in the US equity market – Alpha Architect

A deep dive into UK retailer cum distribution platform Next – John Kingham

Profitability and value together drive a stock’s returns – Verdad

A bit more on Bitcoin mini-special

The bull case for Bitcoin – Morningstar

Wealth management money will come for crypto – A Wealth of Common Sense

An excellent primer on why the new Bitcoin futures ETF is best left to short-term traders – Morningstar

A momentum trading strategy for Bitcoin – Dual Momentum

Covid corner

Public support for ‘do everything possible’ at a record low – New Statesman

Are UK daily cases set to plummet, even without Plan B? – BBC

Mask wearing at the heart of the British Covid divide [Search result]FT

How does Covid end? The world is watching the UK to find out – Guardian

Kindle book bargains

How Money Works: The Facts Visually Explained by DK – £1.99 on Kindle

Island on the Edge by Anne Cholawo – £1.29 on Kindle

Quit like a Millionaire by Kirsty Shen and Bryce Leung – £0.99 on Kindle

Back to Nature by Chris Packham – £1.99 on Kindle

Environmental factors

‘Planned’ fuel duty rise frozen for 12th year in a row [On eve of COP 26…] Independent

Make or break: here’s what’s at stake at COP 26 – Guardian

How one woman protected millions of acres – Reasons to be Cheerful

Decarbonization by the numbers [Podcast]Exponential View

African elephants are evolving to lose their tusks – Smithsonian

Tycoons created the dinosaur – Nautilus

Unfreezing the ice age: the truth about humanity’s deep past – Guardian

Off our beat

How to level up – Raptitude

Job-seekers are ghosting would-be employers as the tables are turned – Slate

Twenty years ago Grand Theft Auto III changed games forever – The Ringer

The grim threat of ‘spiking’ on a night out – BBC

Internal versus external benchmarks – Morgan Housel

The last great mystery of the mind – Guardian

In conversation: Dave Grohl – Vulture

And finally…

“Louis Bachelier is arguably the index fund’s intellectual godfather. But economics and finance are fields where everyone stands on the shoulders of giants.”
– John Wrigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund

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The post Weekend reading: When did you last change your mind? appeared first on Monevator.

Investing for beginners: Time value of money

The time value of money is one of the most important concepts to grasp in investing. Happily, it’s a pretty instinctive one.1

The time value of money reflects how you’d rather get a certain sum of money today than exactly the same amount of money in the future.

Money in the hand now is worth more than exactly the same amount received in a year’s time.

This explains why locking your money away for a longer time (usually) earns you a better return.

The longer you lock your money out of reach, the less it is worth right now.

You need to expect a higher return on your investment to compensate you.

Show me the money!

Which of the following would you prefer?

£1,000 now

The promise of £1,000 in five year’s time

Of course you – and all rational investors – would prefer to receive £1,000 today.

Five years is a long time to wait. Even if you didn’t want to spend £1,000 right now, you could put the money received today into a deposit account earning interest for five years. If you got 4% interest2 on £1,000, then after five years your money would have grown to £1,217.

Why choose to have £1,000 in five years when you could have £1,217 by taking £1,000 now and investing it?

It’s a no-brainer.

Looking further out

Let’s extend the idea to imagine you’re deciding between:

£1,000 in five years

£1,000 in ten years

Anyone sensible would prefer to have £1,000 in five year’s time, rather than to wait ten years for exactly the same amount.

Time value thus describes a continuum. A sum of money received now is worth more than exactly the same amount in the future, which in turn is worth more than the same sum at a date beyond that.

Finally, let’s say you can get 4% interest on cash today, as in my example above. (We’ll ignore taxes and the like for simplicity.)

Which would you choose between these two options:

£1,000 today

£1,040 in a year’s time

If you could expect the £1,000 received today to earn 4% interest over a year, then the value of these two choices is the same.

How do we calculate the time value of money?

All other things being equal, the time value of money represents the interest one might earn on a payment received today, if it was held earning interest until a future date.

The fixed income from safe government bonds is normally used to calculate the present value of a future payment.

The income from government bonds is assumed to be a risk-free rate of return.

But what if that future payment is not guaranteed?

What if your I.O.U. note comes instead from your cousin Bob? Or from a volatile stock market-linked investment such as a share or an index fund?

Without the certain guarantee that you’ll eventually be paid the full amount, the future value of the same sum of money is even lower because uncertainty as well as time value makes it less attractive.

A discount rate can be used to estimate the present value of that future uncertain payment. This discount rate reflects both time value and risk.

As an everyday investor – particularly a passive investor – you may never bother using a discount rate to work anything out. Leave that to analysts.

Just realise that there is (or should be!) mathematics and reasoning behind our gut instincts about saving money.

Time value of money and your investments

Time value can be used in financial calculations to work out things like the present value of a growing annuity.

Such calculations are often built into calculators and spreadsheets. You can find some worked examples on the time value of money Wikipedia page.

But as I say, we’re only looking to understand the gist of the theory here.

The rule-of-thumb is that money put away for longer periods of time will need to offer a higher rate of return to compensate for it not being available to invest in other (potentially superior) assets during that time.

Uncertainty about the future also plays a part, as I mentioned.

Uncertainty is in some respects another word for risk. Remember that that there are many different types of risk when it comes to investing. Usually you’re just swapping one risk for another to best suit your circumstances.

In a savings account you’d be worried about inflation, for example.

Would you be wise to lock away your money for five years at 5% if inflation was 4% and rising?

Probably not.

With a fixed duration security such as a government bond, the nearer today’s date is to the date the government will fulfill its promise to buy the bond back from you, the likelier it is to be priced close to its redemption value.3

Look several years out though, and time value combined with uncertainty about factors such as inflation and government debt will more influence the price of that bond, moving it above and below its redemption value.

Key takeaways

The maths can get complicated, but the takeaway is clear. For all assets, time, uncertainty, and expectations combine to influence risk and return.

Time value of money is often neglected by private investors. But you do need to consider it when deciding whether a particular asset and/or the income it produces makes it a good investment.

This article on the time value of money is one of an occasional series on investing for beginners. Please do subscribe to get our articles emailed to you to learn more! And why not tell a friend to help them get started?

Note: It’s not to be confused with option time value. Nothing is simple with options!
I’ve just picked 4% as an example, to keep the maths meaningful. I know you can’t get 4% on cash currently. That’s not the point here.
The redemption value is the money you’re promised to be paid by the government when the bond’s lifetime is up.

The post Investing for beginners: Time value of money appeared first on Monevator.

How unmarried couples can protect their finances

A reader asks what unmarried couples should do to protect themselves when they’ve accumulated significant assets:

What if you’re not married but [are] in a relationship? As far as I can see there are tax issues if you die but want to leave your money to your other half. Is there anything that can be done other than get married?

Yes! There are several steps cohabiting partners should take that don’t involve a walk down the aisle.

Law in the United Kingdom is as prejudiced against ‘living in sin’ as a firebrand preacher.

Moreover, you don’t earn ‘common-law marriage’ loyalty points for years of service.

I don’t

There are two major problems that place the unmarried at a serious disadvantage:

Intestacy – Cohabitees have no right to inherit if their partner dies without leaving a will. That can get very messy.

Inheritance tax – Married couples can inherit everything from each other tax-free. Cohabitees have no more protection – actually less protection – than the cat’s home.

The unmarried are treated as second-class citizens in many other situations, too. Here’s what I’ll cover below:

Inheritance Tax
Bank accounts
Power of Attorney
Where’s the paperwork?
The compromise solution

I thought I knew this area inside out, because The Accumulators were not actually Mr & Mrs in the eyes of the law.

But further research has uncovered a surprising number of traps for the unwary.

That’s made this post ridiculously long, so please do skip to the most relevant sections for you and yours.

Monevator Minefield Warning – This article is about how to protect your finances if you’re unmarried and you stay together. Splitting up is another kettle of asset division. Luckily, there are plenty of lawyers who will help you with that.

Also while we’re preambling: the constituent countries of the UK have different legal systems. I live in England so my research is based on the English legal system. Wherever you are, please do your own research. I have personal experience of these issues, but I am not a trained lawyer.

Inheritance tax

Assuming you have a will, inheritance tax can be the next big problem for the unmarried.

Inheritance tax is not due on any assets you leave to your spouse or civil partner.

Not so if you’re unmarried.

Inheritance tax is typically due on the value of your estate above £325,000 left to anyone else – including your unmarried partner.

Your estate amounts to the value of your:

Other assets (including crypto and life insurance policies not written into well-designed trusts)
Minus debts and funeral expenses

What’s a possession? Will HMRC come round to value your toaster? (I wrote this as a joke but then discovered I wasn’t far off.)

You can see if the value of your estate breaches the inheritance tax threshold with the help of a handy calculator from Which.

And don’t forget your toaster.

Settling inheritance tax

Inheritance tax is paid from your estate before anyone else gets anything.

Your unmarried partner is in the tax firing line unless you can redesignate them as a charity, political party, or community amateur sports club.

(I assumed that’s doable but Mrs Accumulator A.F.C. was having none of it.)

The nightmare scenario is your estate doesn’t cover the bill, and your partner is forced to sell the house.

For many unmarried couples, their property is their biggest source of inheritance tax liability.

My plan was always to keep an eye on property prices, split the value of the house between us, and calculate our respective estates annually.

Keep up-to-date because you can be caught out surprisingly quickly in a rising stock and property market, especially if you factor in a high FIRE savings rate, too.

Alas there’s no simple way around inheritance tax for the unmarried, though the trust options I’ll get to in a minute may soften the blow.

In the immortal words of Beyoncé’s accountant, if you don’t want to pay inheritance tax then: “you shoulda put a ring on it.”

(Beyoncé’s accountant wasn’t as helpful as I hoped.)

Note: Inheritance Tax exemptions are available to business owners as well as those on active service in the armed forces, police, fireservice, and as paramedics. Too right.

Life polices written in trust

Various life assurance / life insurance options can help square circles such as:

Ensuring an inheritance for your children from a previous relationship.
Enabling your current partner to carry on living in the family home after your untimely demise.

Monevator contributor Mark Meldon wrote about using a life assurance policy wrapped in a trust to manage this situation for unmarried couples.

Life policies written in trust are another way to pay an inheritance tax bill you know is inevitable. Inheritance tax must be paid swiftly – within six months of your death. A life policy ensures funds are on hand, while the trust element stops the payout adding to your estate.

There are other niche trust options but mileage varies.


How you own your home matters.

Tenants in common (Joint owners in Scotland)

Here you each own a defined share of the property. If you die, your share falls into your estate and is inherited by the beneficiary named in your will.

Don’t have a will? Then your unmarried partner has no right to your percentage of the property. None whatsoever. See the wills section. It’s outrageous.

That problem is solved if you make a will (and leave your property to your partner).

Ownership doesn’t have to be split 50-50 between tenants in common. That helps you manage uneven financial contributions.

It can also put your inheritance tax liability in the bucket less likely to be kicked. Say when one of you is much younger than the other.

For example, only 20% of the value of the house is added to your estate if that’s your share on death.

Obviously HMRC’s sniffer dogs perk up should you downgrade your share and pop your clogs shortly thereafter.

Tenants in common is the cleaner option if you break up or want to leave a slice of your property to your children.

Your care home fees are also means-tested against your share of the property, rather than its whole value as with joint tenants.

Joint tenants (Joint owners with a survivorship clause in Scotland)

You own the property together. Your share is intermingled like milky coffee and there’s no dotted line that divides it between you.

If you die, your co-owning partner takes the whole property. They’re not relying on you remembering them in a will.

You can’t – for example – have a drunken row, rewrite your will that night, name the local drugs baron as heir apparent to the house, have a fatal heart attack the next day, and exact the perfect revenge upon your partner.


The right of survivorship gives your partner the last laugh because it trumps any property vengeance laced into your will.

Not a cunning plan…

Now I know what you’re thinking:

‘Aha! That gets us out of inheritance tax because I don’t have a property share to fall into my estate…’

HMRC has thought of that. Inheritance tax still applies in the case of unmarried couples who are joint tenants. You’re assumed to own the house 50-50.

I know what you’re thinking, part II:

‘Aha! Let’s rack up credit card debt and order an all-the-trimmings Dignitas blow-out because my unpaid creditors can’t claim against property that doesn’t pass to my estate…’

They’ve spoiled that sport, too. Your creditors can apply for an ‘Insolvency Administration Order’ within five years of you dropping off the log.

It’s messy, because it involves the courts, but creditors can force survivors to pay an amount up to the value of the deceased’s share of the property.

And one law firm thinks the courts are liable to rule in favour of the creditors:

Unless the circumstances are exceptional, the court must assume that the interests of the deceased’s creditors outweigh all other considerations.

Let’s not sully your memory with this nightmare.

What type of ownership do I have?

Your title deeds should reveal all, or you can find out via the Land Registry.

You can switch from joint tenants to tenants in common via a notice of severance.

Note, your inheritance tax property allowance is reduced by £1 for every £2 it’s worth over £2 million. Which is a nice problem to have.

Equity release and other schemes

Equity release can force the value of your estate below the inheritance tax threshold.

A lifetime mortgage incurs debt that will be subtracted from your estate.
A home reversion scheme reduces the value of your property because you sell a percentage of it to a finance company.

I wouldn’t choose either approach though purely to manage inheritance tax. I mention these schemes only as avenues for research – especially if you like dancing with the devil.

Another rabbit hole to explore is boosting your residence nil-rate band. You can do this by leaving your main property to a child or grandchild, including step and adopted children.

That can raise your inheritance tax threshold from £325,000 to £500,000.

This could work out if you’re confident that your partner and children get on very well.

It’s not clear to me if this option can be combined with a trust guaranteeing the right of your partner to stay in the house. (Jane Austen wrote the book on this.)


Here’s why unmarried life partners need a will – if you die without one then the bloody Queen inherits your estate before your partner:

This screenshot from the government’s intestacy tool shows that your partner is not even in the queue.

True, the list outlined in green reveals a long order of succession before your estate actually falls into the hands of the Queen.

But I don’t even know if I have any half-uncles, never mind whether they’ve got gambling debts they’d love to pay off by pawning Accumulator Towers.

Who knows who’ll come crawling out the woodwork?

I got a will purely to prevent my mum throwing Mrs Accumulator out onto the streets if I bought the farm. (Hi mum! I only put this in to test if you’ve read this far!)

Make a will, even if you’re in your twenties. Certainly the moment you buy a property together. Or have kids. Life only gets busier and more complicated.

You can easily get a mirror will for a good price from an online willmaker.

Bank accounts

Your unmarried partner can access any money in joint accounts without interruption should you snuff it first.

Balances in individual accounts will be frozen until your estate is settled – which can take an ungodly length of time.

Even if you run your finances separately, it makes sense to hold some money in joint accounts, especially if your partner relies on you to pay the lion’s share of the bills.

Obviously you wouldn’t provide them with a list of individual account password details. That would be wrong. That’d breach your bank’s terms and conditions. Very bad.

Joint accounts and inheritance tax

Odd though it sounds, most joint bank accounts are held as joint tenants. As opposed to tenants in common.

In other words, you co-own the funds. That’s why banks won’t block your partner’s access after you enter Valhalla.

But joint tenant ownership doesn’t protect you from inheritance tax.

HMRC will consider your estate to owe inheritance tax in proportion to your contribution to the joint account’s funds – according to various law firms.

If you deposit all the monies then the account falls 100% into your estate.

Moreover, if one partner withdraws more than they contributed, this can be deemed a gift. Inheritance tax is due if you die within seven years of making the gift and its value exceeds your annual gift allowance.

HMRC don’t bother with this if you’re married. Nnngh! The social pressure.


Debt is paid from your estate after death – assuming it’s not joint debt, and your partner didn’t sign up to a loan guarantee.

Obviously debt deducted from your estate will affect your partner’s financial standing if they’re due to inherit what’s left.

In the worst case, they can be forced to sell a shared asset such as the home to cover your outstanding debt. Marital status is irrelevant here.


Pensions do not typically form part of your estate. This makes them an ideal asset storage facility for unmarried couples down on inheritance tax.

ISAs, however, do count towards your estate.

Monevator Minefield Warning – True tax efficiency balances your mix of ISAs and pensions against your income tax, annual allowance and lifetime allowance limits as well as inheritance tax. It’s a tricky trade-off.

Bizarrely, pensions do fall foul of inheritance tax when your beneficiary is legally entitled to benefit from them upon your death.

Yet you’re off the inheritance tax hook when the scheme’s administrator retains the discretion to pay whoever they want.

You may have noticed this discretionary catch on your pension’s ‘Expression of Wishes’ form – where you indicate who’s in line for your retirement jackpot.

The small print goes something like: “Thanks for this, we’ll consider it.” Words to that effect, anyway.

I used to think this was symptomatic of a bad attitude. If I put Mrs Accumulator on the form then I want Mrs Accumulator to get the dosh when I cop it, right?

Who else have they got in mind, eh? Mrs H Lansdown? Mr AJ Bell?

But it turns out the scheme was doing me a favour. Expression of Wishes wording is designed to enable your pension’s death benefits to sidestep your estate.

Not every pension scheme is set up as a discretionary trust – the type that helps you avoid inheritance tax unpleasantries.

Sizing up your pension’s small print

If you haven’t ever looked into this, then I suggest you:

Check your scheme allows an unmarried partner to scoop the death benefits from your pension when you expire.
Ensure the benefit is paid at the discretion of the pension’s trustees.
Double-check lump sum payments are discretionary.
Fill out an Expression of Wishes form for each pension. This is right up there with, ‘Get a will, for God’s sake.’

The scheme’s administrators do not have to follow your wishes. That’s key.

But the lack of social media outrage at pensioners living in cardboard boxes – while Mrs Lansdown eats cake –  makes me think the system probably works.

Note, the terminology isn’t consistent but can matter. Some providers may call their Expression of Wishes form a Nomination of Beneficiaries.

But I’ve discovered that nominating a beneficiary triggers the Inheritance Tax mousetrap for the Nest Pension. (Nest also offers an Expression of Wishes option that avoids inheritance tax.)

My own SIPPs give me a straightforward anti-inheritance tax route. But UK pensions are a patchwork quilt, so check your schemes’ details carefully.

If you have an annuity with death benefits then make sure it includes a similar discretionary feature. As long as the amount you hope to pass on is paid at the discretion of the annuity’s trustees then all should be well. Do your own research for more clarity.

Incidentally, ‘death benefits’ is the term used in the pension / insurance ‘biz’ for any largesse that might take the edge off your sad loss for those you leave behind.

A grey area

The other pension snag is that contributions made while you’re in ill-health, or within two years of death, may be caught up in the inheritance tax net.

The situation is as clear as North Sea fog, but it seems that if you live for two years after making a contribution, HMRC will likely deem it onside.

However it’s dead against people shovelling money into their pension, then promptly carking it in a puff of inheritance tax avoidance.

The taxman deals with this murk on a case-by-case basis.

So look after yourself and hang about to enjoy your own pension.

If you’d like to know more, then please hold while I transfer you to the relevant department.

And another thing…

Make sure your partner is the named recipient of any death-in-service benefits you’re entitled to via your work pension.

Also, unmarried couples can’t inherit any State Pension. Whereas married / civil partnered couples can, in particular circumstances.

Finally, some schemes definitively pay worse death benefits to unmarried partners. Mrs Accumulator’s defined benefit pension is like this.

It’s just another factor to take into account when you ponder the big picture. (Am I starting to sound like your parents?)

Power of attorney

Everyone should delegate power of attorney to a trusted loved one and, as ever, that goes double for unmarried partners.

These powers enable your partner to make health and financial decisions in your best interests should you lose the mental capacity.

If you’re young, think about what could happen if you suffer a severe brain injury in an accident.
If you’re older, think about strokes, dementia, and that should do it.

You can’t rely on institutions consistently consulting your unmarried partner instead of some nearest family member who pops up like a pantomime villain.

The Accumulator is in a coma, hooked up to a life support machine.

Doctor: Shall I just turn him off then?

Mrs Accumulator: NOooo! There’s a chance my beloved might still make it back to me!

Evil half-uncle Nigel: Yep, flip the switch Doc. I want his Nintendo collection.

Doctor: Okay, then. [Flick. Beeeeeeeep.]

Don’t find that very convincing? You don’t know my half-uncle Nigel.

The point is: consider how much institutional friction an unmarried partner will face getting anything done the minute you fade from the scene.

Which is also why you should…

Sort out your paperwork

Make sure they know where to find everything when you’re gone. Even when they’re blinded by tears. (Hopefully.)

If you’ve read this far, it’s probable you’re the one who thinks about this stuff while your other half happily outsources the worry to you.

But there’s no point diligently ticking off these measures to protect them, if they don’t know you’ve done it; or don’t remember, or can’t access the necessary proof.

So come up with a system. How about a heartfelt letter kept somewhere they will definitely look should they ever need it?

That’s an expression of love in itself. And even if they don’t seem super-interested, it’s probably because they don’t want to think about your impending doom. That’s an expression of love, too.

And maybe they’re secretly paying attention.

Civil partnership

There’s a third way between marriage and unmarriage now available to anyone in the UK1 and that, of course, is civil partnership.

Legally you enjoy the same benefits as a married couple.

Psychologically, it may suit you better than marriage.

It all depends on the reasons why you and your partner prefer to cohabit.

I can only speak personally.

Mrs Accumulator and I ‘lived in sin’2 for 28 years. Marriage wasn’t for us for reasons that are personal and difficult to articulate.

Somehow a Civil Partnership doesn’t come with the same baggage. As a non-traditional institution, it seemed less rigid to us, and we felt freer to remake it in our own image.

I asked Mrs Accumulator if she’d like to ‘get civilised’ on Christmas Day 2020.

She said “Yes,” and we finally reached civilisation in a short, fun, and emotional ceremony in August 2021.

It was a great day spent in the delightful company of our close family. If anything it’s brought us closer together – another happy, shared memory, and another thing to rib each other about.

Meanwhile, in the back of my mind, I’ve quit worrying about all the faff I’ve spelled out in this post. Inheritance Tax, evil half-uncle Nigel, all of it.

Well, nearly all. You’ll still need Power of Attorney. And a will won’t hurt.

Take it steady,

The Accumulator

p.s. Final thoughts

Who am I? Jerry Springer?

I thought it’s just worth mentioning that the uncertainties and outright disadvantages of cohabiting can creep up on you.

One minute you’re a pair of moon-eyed lovebirds without a brass razoo between you. The next, you’ve mothballed your Tinder accounts and built a life together.

Yet the law gives you no claim on each other’s assets, whatever your intentions.

Youthful invincibility fades and assets accumulate. Protect them as best you can and keep each other safe. Don’t leave it to chance.

If you’re over age 18 or over 16 with parent / guardian permission. I predict zero people between the ages of 16 to 17 are presently enjoying this article though, and rightly so.
That’s just my way of glamming it up a bit. I don’t believe in this sin BS.

The post How unmarried couples can protect their finances appeared first on Monevator.

Weekend reading: The nothingness of money

What caught my eye this week.

I think we can all agree that money is not the most important thing in this life.

Equally, I suspect most of us believe money is one of the most important things in our lives. Simply because of how it enables us to do the other things.

I’ve been wrestling (often in the mud) with this conundrum for much of my working life. For me the path has mostly been to earn less (so less stress, and more life) and to save more (because I didn’t earn enough to save less while still hitting my financial freedom goals).

Others I respect, such as my co-blogger and the rarely-spotted RIT, took a different approach. They both sucked up many years of work stress at the same time as saving hard. They wanted to get out sooner than average, and they started saving later than me.

So you can turn these dials in various ways, particularly if you earn mega-bucks.

But most people will choose less stress as well as less saving… the conventional path to retirement at 67.

Being and nothingness

This week the marmite-y website More To That exposed what drives these choices from a different angle:

There is just one certainty: One day our time will be up, and we have no idea when that day will be.

Equipped with this knowledge, people decided that they didn’t want to spend their entire lives thinking about money.

They wanted the Nothingness of Money to start earlier than the last few moments of their lives, so they could spend at least a few decades living without the attentional drain of their finances.

They devised a tool that helped elongate the Nothingness of Money, and its invention ushered in a new way of thinking about financial freedom.

That tool was called retirement.

The full article will either make you think a lot or else seem trite.

I was left a ponderer, but then I always have been skeptical of the power of money – particularly for a money blogger!

At least the More To That vision of retirement looks more fun than most existential musings do:

Have a great weekend everyone!

From Monevator

The time value of money – Monevator

How unmarried couples can protect their finances – Monevator

From the archive-ator: Know your own risk tolerance – Monevator


Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1

Bank of England surprises markets by holding rates at record low – CNBC

U-turn over access rules re: pension age rise from 55 to 57… – ThisIsMoney

…and the rationale – Which

New York’s Mayor Elect to take first three paycheques in Bitcoin – The Block

Luton man left shocked as his house is ‘stolen’ – BBC

UK average house price hits record £270,000 high… – Guardian

…while return of super-rich to London fuels house price surge – Guardian

Boris Johnson can’t escape the economic costs of Brexit [Search result]FT

The OBR’s scary forecast on [bad scenario] UK interest rate rises – David Smith

Is rampant house price inflation about to decline? – ThisIsMoney

Products and services

Who made more: you or your house? [‘Fun’ interactive tool]New Statesman

Money coaching app Claro offers FSCS-protected 2% on first £3,000 saved – ThisIsMoney

BOE rate hold means more time to secure a cheap mortgage – Guardian

Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor

Half of the UK’s energy suppliers have gone bust this year – ThisIsMoney

How to super-rich buy their homes [Search result]FT

What you can expect to pay to buy the freehold of your flat – ThisIsMoney

How has coronavirus affected house prices? – Which

Homes with an air source heat pump, in pictures – Guardian

Comment and opinion

The power of passive investing: time to relearn lessons [Search result]FT

Why 84-year-old Winning The Loser’s Game author Charlie Ellis owns no bonds – Humble Dollar

There’s no such thing as enough money – Incognito Money Scribe

11 things every stock market investor should know – Darius Foroux

Momentum is building for 24/7 stock markets – A Wealth of Common Sense

Two books to live by – Humble Dollar

How one 27-year old makes $10,000 a month as freelancer on FiverrCNBC

Hot streaks in your career don’t happen by accident – MSN

Smart beta: sometimes smart, sometimes not [Search result]FT

The value of nothing: capital versus growth – American Affairs

Corporate culture mini-special

Does a fund manager’s culture and brand matter? – Behavioural Investment

Corporate culture as an intangible asset – The Evidence-based Investor

Naughty corner: Active antics

Inflation and stock market returns: a deep dive – OSAM

“I picked that stock, so it won’t go down”Klement on Investing

The recovery in European value stocks may have further to go – Verdad

Moonshots – Foxy Monkey

Bill Miller: a value investor’s education – Neckar

Covid corner

America has lost the plot on Covid – The Atlantic

Where are we at in the UK? – BBC

Kindle book bargains

Exponential: How Accelerating Technology Is Leaving Us Behind by Azeem Azhar – £0.99 on Kindle

Happy Sexy Millionaire: Unexpected Truths about Fulfilment, Love, and Success by Steven Bartlett – £0.99 on Kindle

Billion Dollar Loser: The Epic Rise and Fall of WeWork by Reeves Wiedman – £0.99 on Kindle

Liar’s Poker by Michael Lewis – £0.99 on Kindle

(What do you mean you haven’t got a Kindle? Get £20 off one today.)

Environmental factors

A SIPP can be a great way to save the planet… – DIY Investor UK

…but markets can’t fix climate change on their own – The Evidence-based Investor

Off our beat

Fitness: one step at a time – Humble Dollar

Arc – Indeedably

The same stories, again and again and again – Morgan Housel

Can data die? Tracking the Lenna image – The Pudding

The new science of metabolism – Guardian

The Metaverse: brave new world, or capitalist hellscape? – ETF Trends

And finally…

“Mortality makes it impossible to ignore the absurdity of living solely for the future.”
– Oliver Burkeman, Four Thousand Weeks: Time and How to Use It

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The post Weekend reading: The nothingness of money appeared first on Monevator.

How to complain about a financial provider to the Ombudsman

This article on the Financial Ombudsman is by The Treasurer from Team Monevator.

I was a big fan of the BBC’s Rogue Traders. The host Matt Allwright would confront dodgy businessmen in action. He’d chase them down a street if they did a runner from the cameras. It made for a great show, though it’s since been relegated to become a part of Watchdog.

Anyone who regularly watched Allwright’s antics would be forgiven for thinking the UK is a Wild West when it comes to consumer protection.

However, despite it looking easy on the TV, being a rogue firm in Britain is actually hard work.

That’s partly because of two very valuable pieces of consumer weaponry.

I’ve previously highlighted the benefits of Section 75 of the Consumer Credit Act. I explained how this nifty bit of legislation gives you huge protection on credit card purchases.

This time I want to touch on one other big piece of consumer protection – known as the Financial Ombudsman Service.

Enter the Ombudsman

While the Financial Ombudsman Service isn’t exactly a form of legislation, it was set up by the Government back in 2000 to settle complaints between consumers and businesses that provide financial services.

The term ‘financial services’ is rather vague, but the remit of the Ombudsman safely covers banks, building societies, insurance firms, investment services, and even breakdown cover.

The Ombudsman is completely free to use, and settles disputes by what is deemed ‘fair and reasonable.’

As a result, you don’t have to be a legal eagle to be successful with a Financial Services Ombudsman claim.

If you think a financial company has treated you unfairly, then chances are, you’ve a pretty decent case.

How does the Financial Ombudsman Service work?

First things first, if you’re at odds with a financial company, you can’t just take your complaint straight to the Ombudsman.

That’s because you must first make a complaint to the financial company, outlining your grievance.

If you are dissatisfied with its response, you may wish to crank up your complaint in a follow-up.

Make it clear you aren’t prepared to back down. When you do this, explain that you are prepared to take your case to the Ombudsman.

If this does the trick, then great!

If not, then any further correspondence from the company should state that it is their final response. This is often referred to as a ‘deadlock letter.’

Once you receive this, you’ll have every right to escalate your case to the Ombudsman.

The same also applies if you don’t hear back within eight weeks.

How to start a claim with the Financial Services Ombudsman

To start a claim, you must use the official website, or call 0800 0234 567.

At this point, it’s recommended that you forward any relevant correspondence, and/or evidence supporting your claim.

If the Ombudsman needs any further information, it will reach out to you.

Claims typically take between three to nine months to resolve, though it can take longer during busy periods.

Once the Ombudsman makes its legally-binding decision, the financial company will have to put right any wrongdoing.

If the case doesn’t go your way, you do have the option of asking for the decision to be reviewed by an actual Ombudsman, rather than a caseworker.

Financial Ombudsman Service: What else is there to know?

Aside from the practical steps, here are four things that are worth knowing about the Ombudsman.

1.You can go back up to six years to make a claim

That’s right. You can submit a case to the ombudsman up to SIX YEARS after an event took place.

For example, if you were treated badly by your insurance provider a few summers ago, there may still be time to put things right.

2. You don’t have to use the Ombudsman

If you’ve suffered wrongdoing by a company, then the option to take your case to the traditional county court still exists.

However, while the Ombudsman will make a judgement on the nebulous definition of what is ‘fair and reasonable’, the court will base its decision on the letter of the law.

3. It normally applies to UK-based companies (but check)

While it may seem obvious, you typically can’t use the Ombudsman service if the company you have a grievance with isn’t based in the UK.

However some non-UK based companies such as PayPal have voluntarily agreed to join the service. So if you do have a dispute with an overseas financial company, it’s still worth checking with the Ombudsman to see if it has the authority to take on your case.

4. The service is free (but only for consumers)

While a lot is made of the fact that the Ombudsman is free for consumers, the same isn’t true for financial companies.

While the Ombudsman offers businesses 25 ‘free’ cases a year, subsequent cases are billed at £750 a pop, regardless of the outcome.

In other words, even if a company wins at the Ombudsman, it will often have to pay a hefty charge for the privilege of using the service.

This, in my opinion, is what makes the Ombudsman such a powerful consumer weapon. The mere mention of going to the Ombudsman may encourage even the most tightfisted of companies to simply pay up.

Financial Ombudsman Service: my experiences

Despite having written this article, I’m almost ashamed to admit that I haven’t needed to use the Ombudsman directly.

That being said, I’m certain the existence of the service did persuade a former travel insurance provider to pay up for a legitimate claim.

It all took place a few years ago when my passport was damaged by rainwater during an overseas trip. As I hadn’t been drinking, nor had I acted unreasonably, I was certain my claim would be approved.

(I did go through the policy small print to make sure I hadn’t inadvertently done something I shouldn’t have!)

My initial claim was turned down,. The insurance company outrageously claimed my passport wasn’t properly in my possession during the time of the incident. I refuted this by adding a follow-up with further details about my claim.

Once again, I was given the cold shoulder.

My next response I upped the ante. I let my provider know that I’d have ‘no hesitation in taking my claim to the financial ombudsman service’ if I was not satisfied with their next reply.

They decided to pay up.

To my mind this was because they knew – as I did – that the Ombudsman fee would be greater than the cost of replacing my passport.

Sticking up for the little guys

When I tell others about my experience, it’s often suggested that I was partly to blame for going with the cheapest travel insurance I could find.

Yet in my view, the existence of the Ombudsman simply means that I don’t have to worry about overpaying for financial products in the future.

If anything goes wrong, the Ombudsman has my back!

Over the years I’ve shared my knowledge of this free service to friends and family. I’ve yet to hear of any negative experiences.

Have any of you used the Financial Ombudsman Service? If so, we’d love to hear your thoughts in the comments section below. You can also check out The Treasurer’s archive of previous articles.

The post How to complain about a financial provider to the Ombudsman appeared first on Monevator.

FIRE update: six months in

I have just reread my three-month ‘How’s FIRE1 going, then?’ update.

I seemed happy when I wrote it. I’m happy now! So far this thing has not grown old.

I was outed recently at a friend’s birthday. I was among peers I hadn’t seen for ages, but have known for years.

Word had gone round: TA is ‘retired’.

The responses?


“How does that work?”
“Are you really retired?”
“What do you do all day?”

Under this intense interrogation, I finally found a way of explaining FIRE that seemed more relatable:

You know when you’re on holiday at home? You don’t go anywhere fancy but spend more time with family and friends, doing the things you want to do.

The pace of life slows down, you relax, and even chores don’t seem so bad.

It’s like that. All the time.

Ding! That made sense to people. Now they could imagine it. Most of them had lived that for a few days over the summer and they wanted more.

Instead of puzzlement, I now got smiles. And stories about hiking trips to the Lakes, lunch dates with friends, and time to be yourself.

That last point struck home for me. I had a work persona that I donned like a suit of armour. The slings and arrows of the office mostly bounced off, but the odd potshot got through. Each hit taking another nick out of the me inside.

Wearing that persona made me feel hollow, like The Tin Man.

After a week off, I’d feel like I was just about emerging from the shell. Then I had to strap it back on and rejoin the fray.

Floating in space

I feel so much lighter now. I haven’t felt this free – or as excited about what’s around the corner – since I was a 21-year-old entering the workforce.

It’s amazing to have that feeling back. Tempered by grizzly/grisly experience, of course!

Mrs Accumulator and I met at uni. We’ve spent more time together this summer than at any point since those student days. That’s been wonderful.

Something that’s very little talked about is the emotional wrench of leaving your loved ones for 10 to 14 hours every day of the working week.

We don’t talk about it because we all do it. It’s normal. But it wasn’t so before the industrial age. I don’t think many people are really built for it, and that’s partly why Monday mornings feel soul-destroying.

We’re in Monday mourning for family bonds that cannot be replaced by office perks like a coffee bar or table football (because this workplace is sooo much fun!)

Now that’s in my past, I’m scaling the far side of the happiness U bend.

Rediscovering the lightness and sense of possibility from my youth is an unexpected gift.

Maybe now I can have another tilt at being an astronaut?

Okay, maybe not. But I can have breakfast in the garden just because it’s sunny.

Or enjoy a conversation with a neighbour because I don’t have to hurry.

And I’m not on the verge of a minor meltdown just because a bin bag burst, I’m knackered, and I can’t take it anymore.

Positivity overload

Too much? Don’t I have anything negative to report?

Or is FIRE like living in a Hovis advert, 24/7?

I’ve come to realise that I still need to protect my time a bit. Before financial independence I dreamed of endless days when I could do everything I wanted and still have time for tea.

Clearly though, that was the babbling delusion of a fantasist.

I can’t squeeze it all in and some of the wrong things have been squeezed out. My physical fitness has dropped off a cliff.

There was always a place for it in my work-life routine. Now that’s fallen apart I haven’t found a new slot for exercise.

So I need to sort that out.

Otherwise all that sustainable withdrawal rate (SWR) planning for a long and happy life will be for nowt. Tut-tut!

Take it steady,

The Accumulator

Financial Independence Retire Early.

The post FIRE update: six months in appeared first on Monevator.

Weekend reading: Move on up

What caught my eye this week.

The markets are throwing in the towel on the notion of ‘transitory’ inflation, or at least transitory US inflation. The US consumer price index just jumped 6.2% – the most since 1990 – and alternative measures that strip out everything that Americans actually want to buy show rising prices, too.

Some holdouts believe this is an American issue. They finger more generous fiscal stimulus in the US. Europe and Asia might yet avoid surging prices, they suggest. But that doesn’t seem likely to me.

Prices are already up in the UK and inflationary Brexit impacts – border friction and staffing shortages – are piling on top of the global trend.

More generally, Covid and waves of economic shutdowns happened globally. Those disruptions are what’s causing rising prices.

The best case – which I still haven’t totally given up on – is that inflation should ease as we get past the worst of Covid. Some price rises may even reverse as deflationary forces prevail again.

However I’m coming around to the view that higher prices may persist.

And that’s mainly because they are already persisting!

The more we see rising prices, the more companies and consumers expect more of the same. Companies will increase prices where they can. We’ll try to get pay rises to keep up.

That in a nutshell, is what they call spiraling inflation.

We best hope it doesn’t get out of hand.

Keep on keeping on

Should Central Banks be quicker to raise rates in response to rising prices? The US bond market has been mildly roiled recently by fast-shifting calculations concerning exactly that.

I’m not convinced the boss bankers should hurry, however.

Let’s think about why we have these rising prices today.

Back at the beginning of Covid consciousness – late February to March 2020 – there was no consensus as to how nations should or would tackle the threat.

As long-time readers may remember, I was wary of mandating blanket economic shutdowns. True, that had seemingly done the trick in China. But China had only needed to totally switch off one province, and I feared the consequences of shuttering countries. I wondered if Westerners would even submit to such mandates. And if they did, there would be a big sudden hit to GDP – as well as some lasting economic damage (or ‘scarring’).

As it became clear a second wave of Covid was coming in the UK by late summer 2020, I gave up my side hustle as a freelance epidemiologist. It was clear I’d misread some of the early data. Moreover the experts were right – Covid would be with us for a time. No use in wishful thinking.

Nevertheless, that time looked truncated when the vaccines arrived in Autumn 2020. Especially when their efficacy data was better than anyone expected.

Since then though the vaccine picture has got murkier. Vaccines have done a great job preventing death and reducing hospitalization. But – perhaps because of the emergence of the delta variant – they have done less well curbing transmission. Worse, more than 100 people are still dying of coronavirus every day in the UK. That includes plenty of unvaccinated. The picture is similar the world over. This all has consequences for our economies, and hence inflation.

Persistent Covid has led to a pattern in most countries of waves of infection, some measure of lockdown and restriction, and then periods of rebounding economic activity. Set against that is a rising count of vaccinations (that has rightly made people feel safer) and natural infection (that probably hasn’t, but has ultimately conferred the same antibodies so should).

It’s looking likely the pandemic endgame is that most people in most countries get vaccinated, but the virus never vanishes. Many of us will encounter Covid again in the wild during an Nth wave, but we may not be much affected after repeated vaccinations and low-level infection. There are good new drugs to treat infections coming on-stream, too. Eventually, Covid fades into the background as enough people have been exposed, perhaps multiple times. With luck it doesn’t flare up as something deadlier or even more infectious.

One reason for this fatalistic attitude is what’s going on in Europe right now.

For the past few months people have asked why the UK can’t be more like the Germans, say, who had seemed to have avoided a delta wave.

In recent days though a new wave has taken off in Europe:

True, the vaccination rate isn’t especially high in Germany and Austria. There may be other local factors, too.

But there really doesn’t seem much room between the most extreme measures – China’s zero-tolerance say – versus trying to vaccinate as many as you can and then opening up and running hot, as we’ve done.

Anything less than fortress isolation and it seems that (delta) Covid will find you out, sooner or later. After that it’s about managing peak numbers to prevent pressure in hospitals.

The Netherlands is even going back into a partial lockdown.

Keep on pushing

Back to inflation, and Covid’s impact on the economy. What we’ve seen over the past 22 months as the pandemic outlined above has played out is:

Consumers save a lot when in lockdown
Most are happy to spend when restrictions ease
This has led to wild fluctuations in the savings rate
It’s also left companies by turns over and under-estimating demand

There has been huge disruption to supply chains and working practices caused by both Covid and by the measures that restrict its spread.

Some people believed we could switch off the economy and then on again with almost no impact. Almost like moving one cell in a spreadsheet from column A to column B.

And indeed, this has sort of happened at the aggregate level – albeit at the cost of a piling up a lot of national debt to make this ‘suspended animation’ possible (via furlough payments and the like).

GDP recovers sharply from lockdowns in most countries. Even where a lot of jobs were lost, such as in the US, the vast majority of those who want work have now found it again.

However it has not been exactly like that cell copy-and-paste process when you look into the weeds.

Maybe I’ve spent 20 years too long reading company reports, but I was adamant that turning off the economy would snarl up the global economy to some degree. Today’s companies are run so efficiently they get disrupted by almost anything, and they happily make this plain to shareholders. So it was clear that suppliers and customers unpredictably blinking on and off like a globalized game of Whack-a-mole would cause trouble.

In this stop-go economy, if you need this or that commodity or component to finish your product and meet recovering consumer demand, you will pay more for it. Perhaps a lot. Since you can pass at least some of the higher cost to newly-ravenous consumers, you do. Hence rising prices.

Still, I believed this would be a one-off shock that would get sorted in a few months. But I was wrong about that. The rolling waves of Covid and those on/off restrictions mean different bits of the economic tapestry continue to go offline at different times. So the disruption continues, perhaps hidden by what’s captured in noisy overall GDP figures.

There are other factors, too. I’ll leave you to Google if you’re curious, but the biggie is obviously a labour shortage in many Western markets.

Some people left the workforce early – aka the Great Resignation. Others don’t want to do what they did before, having reassessed their lives from their comfy couch for a year. (Put service staff into this group). Some people are still scared of getting sick. A lucky few have maybe made so much from rising asset prices of all descriptions that they don’t need to work any more.

Near-zero interest rates are a factor at the margin, too. To lots of everyday people, saving seems a waste of time. True, rates have been low for a very long time, but many people didn’t have any savings for much of the past decade anyway, so they were none the wiser.

Now they do have cash – from government support and enforced confinement – they see little incentive to save it.

The wealthy already save too much (arguably), but I notice many are now happier to flash extra cash at the margin, post-Covid. Certainly my richer friends have paid almost any price to travel this summer. Even I overpaid for my recent jaunt to Cornwall.

It all adds up.

People get ready

So basically we have more people with more money to spend chasing goods and services that cost more to make because someone somewhere in the world couldn’t or wouldn’t make or do something else, or didn’t want to buy what someone else made.

Simple, eh?

The trouble is it’s hard to see this situation changing anytime soon. That’s because Covid continues to be felt across the globe.

Companies will get better at flexing their supply chains – they already are – but there’s a limit. Anyway, it costs money. That is itself a recipe for higher prices a few months from now.

Then you have recovering rents (for landlords of all sorts) and other postponed inflationary hikes as we return to normal. (Some of this should be eased from a CPI perspective by the 2020 recession lows falling out of the statistics.)

I suspect all this is why the Bank of England and the US Federal Reserve aren’t yet raising interest rates. Making money more expensive on top of everything else won’t do anything to solve short-term disruption problems. Much higher rates could make it much worse.

That said, Central Banks know they can’t let this get out of control. Raising rates will curb demand, even if it doesn’t help the supply situation. So we can be pretty sure they will act eventually – probably once they believe the economy is sufficiently settled to take the shock.

Maybe we can all agree not to ask for a pay rise? That’s our best bet for dodging embedded long-term higher inflation – and consequently much higher interest rates, which would do wonders for our cash deposits but smash bonds, and likely also hit richly-valued shares.

How about it? A collective sacrifice for the good of a long-forgotten statistic like CPI?

Yeah, me neither. Best buckle up for a bumpy ride…

…or else hope that all this inflation fear becoming the consensus means we’re actually at the peak of inflation concerns? Maybe when the Fed blinks – and everyone is all-in on inflation – it’ll be time to contrarily buy 10-year Treasuries?

Funny things, markets.

Have a great weekend everyone!

From Monevator

How to complain about a financial provider – Monevator

FIRE update: six months in – Monevator

From the archive-ator: How gold is taxed – Monevator


Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1

US inflation hits its highest level since 1990 at 6.2%… – Sky News

…while crisps and soft drinks lead a surge in UK food prices – Guardian

Brexit: UK looks likely to trigger Article 16 – BBC

Disadvantaged graduates earn half as much as privileged peers in first job – Guardian

Could tougher EPC regulation hit the price of Britain’s Victorian homes? – ThisIsMoney

“We lost festive savings in family WhatsApp scam”BBC

It’s time to scoop up cheap UK stocks, says JP Morgan – Market Watch

Products and services

Investment trusts rediscover their roots with a 21st century twist [Search result]FT

Is Bitcoin now too big to fail? – Institutional Investor

Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor

Seven things you should know about Junior ISAs – Which

Venerable dealer Stanley Gibbons touting co-investment into world’s most valuable stamp – Showpiece

Uber raises London fares by 10% in effort to lure back drivers – Guardian

Another article on the ins and outs of heat pumps – ThisIsMoney

Homes with great walks on the doorstep, in pictures – Guardian

NFT mini-special

How NFTs create value – Harvard Business Review

You nowadays need to buy a basket of crypto assets – Fred Wilson

NFT games are a tax-filing nightmare [US but relevant]Protocol

Comment and opinion

What it’s like to grow up in a FIRE family – Budgets are Sexy

You are what you eat, and invest – Incognito Money Scribe

Index funds track the ‘investable’ half of markets – Pragmatic Capitalism

Asset allocation when you have enough – Morningstar

When cash is king – Humble Dollar

How to invest when inflation is high – Of Dollars and Data

When the living is easy – Banker on FIRE

Thoughts on Safe Haven by Mark Spitznagel – Simple Living in Somerset

Taxing – Indeedably

Remembered: first steps on a nine year march to FIRE – A Purple Life

Do interest rates matter more to the economy or the stock market? – AWOCS

The mirage of direct indexing – Enterprising Investor

Naughty corner: Active antics

Institutional investors don’t care about gold anymore – Klement on Investing

Valuing Tesla. Again. – Musings on Markets

Investing lessons from the Stoics – The Undercover Economist

Long-term investors must make a Ulysses pact – Behavioural Investment

The return of the return gap: Ark Innovation edition – Morningstar

A candid account of some less-than-stellar investment trust trading – Getting Minted

Covid corner

The Covid [treatment] drugs are finally here [Search result]FT

Over 11 million booster shots now given in Great Britain – UK Gov

Kindle book bargains

Exponential: How Accelerating Technology Is Leaving Us Behind by Azeem Azhar – £0.99 on Kindle

Happy Sexy Millionaire: Unexpected Truths about Fulfilment, Love, and Success by Steven Bartlett – £0.99 on Kindle

Billion Dollar Loser: The Epic Rise and Fall of WeWork by Reeves Wiedman – £0.99 on Kindle

Liar’s Poker by Michael Lewis – £0.99 on Kindle

Environmental factors

Climate talks into overtime as nations near deal – BBC

Where to find an extra £20,000 for an electric car, and other COP 26 questions – BBC

The enormous hole that whaling left behind – The Atlantic

Turning cities into giant sponges to embrace floods – BBC

Off our beat

Experts from a world that no longer exists – Morgan Housel

Truth is elusive, but it isn’t evasive – Seth Godin

Will Johnson’s Global Britain ever escape the shackles of Brexit? – New Statesman

Things nobody ever tells you about making friends in adulthood – Art Of Manliness

And finally…

“Like the old miners, coal has almost completely disappeared from our lives.”
– Jeremy Paxman, Black Gold: The History of How Coal Made Britain

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Survival of the fittest when it comes to ESG fund returns

The Scientist from Team Monevator looks into the issue of ESG fund returns. Check back every Monday for more new perspectives from the Team.

Some of the first national parks in the world were established in the U.S. to protect the natural ecosystem.

This conservation effort was inspired by the scientific work of Alexander von Humboldt during his travels in the Americas. There he had discovered unrivaled biodiversity.

Humboldt initially studied finance before moving into the natural sciences.

Given this confluence of interests, if he’s looking down from the great library in the sky Humboldt may be pleased to see today’s prevalence of environmentally conscious investment options.

Another naturalist, Charles Darwin – who was also influenced by Humboldt – posited the theory of natural selection. He proposed the best-adapted species thrive in a given ecosystem.

Given how elaborate and complex the ecosystem of ESG index-tracking products is these days, it hard to see which ones will adapt and which will survive.1

Will it all come down to performance?

Wealth warning: The following analysis looks only at the most recent few years of stock market returns. These years have been kind to ESG funds. We don’t yet have long-term records for this style of investing.

ESG funds haven’t been popular for long enough to do a long-term comparison.

Who knows how well ESG funds will hold up when the market gets ugly?

ESG fund returns matter

Investing is about growing your wealth.

So ESG funds need to make us richer without compromising their self-defined ESG criteria.

Let’s look at a low-cost equity fund that follows the ESG index we dissected in my last post: the FTSE4Good Developed Index.

The L&G PMC Ethical Global Equity Index Fund G25 is a low-cost ESG index fund that has shown continued growth over recent years.

Annualised returns come in at:

25.57% over the past year
13.11% over the last three years
13.80% over the last five years

Ongoing charges are relatively low at 0.25%.

So far you’ve seen your money grow, even with this being an ESG fund.

And you can (potentially) get more peace of mind from knowing that your money is being invested with at least some ethical considerations.

However to my eyes this fund’s ESG credentials are not perfect.

What’s this L&G fund made of?

Here’s how your money is allocated across sectors when you invest with this fund:

ESG comes down to personal beliefs. And in my opinion, I would argue that no company dabbling in oil and gas – representing 2.6% of this fund – is conforming to ESG good practice, given the scale of the climate crisis.

Let’s now look at the companies you own by investing in this fund:

Although they’re good enough for the rather bloated FTSE4Good algorithm, for my money none of the companies in the L&G funds’ top ten holdings are synonymous with especially great ESG behaviour.

ESG fund returns versus non-ESG funds

How do low-cost ESG and non-ESG funds compare directly?

This is a trickier question to answer because similar-sounding funds may not be directly comparable under the hood.

But I think we can get pretty close by comparing two funds run by everyone’s (passive) investment darling, Vanguard.

One fund is ESG-friendly: Vanguard ESG Developed World All Cap Equity Index Fund.
The other is not: Vanguard FTSE Developed World UCITS ETF (VEVE).

The two funds both aim to track global developed world equity indices, however. So they should offer fairly comparable returns.

Here’s how the fund returns compare:

The ESG fund returned 31.7% over the past year versus 40.0% for the non-ESG fund.
It delivered 16.4% compared to 19.0% annualised over the past three years.
Over the past five years the ESG chalked up annualised returns of of 13.2% verus 16.2% for the vanilla index.

Ongoing charges were low for both, although the ESG fund is slightly higher at 0.20% compared to 0.12% for the non-ESG fund.

What is responsible for these differing returns?

The composition of these two funds is very similar:

If you dive into the list of companies held in each fund, it’s not until the 28th listed holding that you get to something overtly non-ESG. There you’ll find Exxon Mobil Corp comprises 0.41% of holdings in the non-ESG fund.

At the same place in the list in the ESG fund you have Thermo Fisher Scientific Inc, an American supplier of scientific equipment and materials. That is down at 31st in the non-ESG fund.

So while the largest holdings in the funds appear very similar, there are some clearly non-ESG companies in the standard index fund.

And as we saw in those annual returns above, it seems that by excluding such firms you lose some performance. Albeit only a few percent over the long-term.

That said, in the fairly abnormal year just past the non-ESG fund outperformed by almost 9%. That sort of gap would really compound horribly if it continued over time.

ESG fund returns versus Active fund options

ESG considerations are not specific to low-cost index funds.

Active funds are cashing in on the trend as well.

Fundsmith Equity Fund is a popular actively managed fund, having performed well over the past decade.

And now it has a sustainable option too, operating since mid-2016.

The sustainable vs. non-sustainable funds have performed very similarly: 24.3% vs. 25.9% for the past year and 21.2% vs. 22.4% annualised over the past three years.

For context, the longer running non-sustainable fund has delivered 24.8% annualised over the past five years. We have a little while longer to wait for five-year returns from the ESG-friendly offering.

Active management comes at a cost. Ongoing charges are 0.96-0.97% (the sustainable fund is 0.01% more expensive).

Interestingly, the differences in composition of these two funds are more noticeable than with the passive options above:

The non-sustainable Fundsmith offering contains a big whack of tobacco, mostly in the form of Philip Morris International Inc.

But tobacco is the standout ‘bad guy’ here. Other popular sin stock sectors like Oil & Gas do not seem to feature.

Indeed, to me it’s not clear if the holdings within the different sectors are notably more ‘sustainable’ in one fund over the other.

This matters because so far there’s been a (small) sacrifice in performance of a few percent from choosing Fundsmith’s sustainable option.

As an ESG investor you don’t want to under-perform for no good reason.

Who will survive?

For ESG funds to stay popular, they need to achieve good growth in absolute terms, whilst not being smoked by non-ESG funds on a relative basis.

The ESG options I’ve looked at in this aticle are short a few percent points of performance versus their non-ESG comparisons.

Such deficits are not so bad when annualised growth is consistently in the double figures anyway. But how long will that last?

And any deficits will compound over time.

ESG ideologies are surely here to stay. But specifc funds will come and go.

It is up to each individual investor to decide which ESG options work for them. Those funds will only survive if you and other investors back them.

And survival will depend on whether the funds perform – or else on whether their managers can convince customers that any performance loss is justified by the effectiveness of their ESG criteria.

Your move

Judging by the comments on my last post, there are a lot of different views on how to be ESG-responsible with your money.

Choosing ESG investment options can at least indicate to the market that consumers want ESG products.

And non-selective global funds will eventually evolve to incorporate ESG trends anyway, if that’s the direction society as a whole is moving.

But the ball needs to keep rolling for societally-relevant ESG trends to make it into general index trackers.

For that to happen, there must be continued investment through ESG strategies to signal that this is the direction people want to go in.

It’s up to you if that’s something you’re willing to pursue – and if you’re willing to put your money on the line!

I won’t judge you either way.

But for myself, I’m willing to sacrifice a few points of performance in the hope that there’s something left of our natural world for the next generation.

(I said a few percentage points, mind…)

You can see all The Scientist’s articles in their dedicated archive.

ESG funds are managed with Environmental, Social, and Governance criteria in mind.

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The contrast effect: Post-FIRE life vs old life

This is about a day in my post-FIRE1 life and how achieving financial independence changed everything.

So it begins

The summer holidays are over. It’s nose to the grindstone now from late August until late October. Day in, day out.

A friend wonders if I’m around for a bike ride next week? I can do that!

Just another day

I internally rage at the injustice of a September day drenched in sunshine when I’m stuck in the office. Too many of my August days off were just drenched.

We’re not tied to a schedule, so we pick the best day of the week for the ride. This is how to play the British weather lottery…

My favourite waste of time

I’m stuck in the meeting time forgot. Theoretically it’s about strategy. In reality, a higher-up is chucking time on a bonfire, talking about things that will never happen, because they want to feel in control.

I’m cycling through a sunny country lane with a good friend, gassing about nothing. Occasionally we’re stunned into silence by the views.

This is a crisis!

A client sends cryptic feedback. Our work isn’t impactful enough. Can we make it pop? They want something more viral. (I’ll give them something more viral.) The day is derailed. I’ll be dealing with this long into the evening.

We’ve dragged our bikes halfway up a muddy hill when some cows want their cowpath back. Fair dos, they’re bigger than us. But the embankments are choked with man-eating nettles. We curse, slide, and laugh our way back down.

Mothers shepherd their newly minted calves past us. The babies are cute as buttons! One little nipper springs by – full of beans on slippery stones. You go girl. Another’s very cautious and needs a nudge from mum. Aw.

Losing it

A member of the team has lost their confidence. Another has lost their password. Still another their laptop. I’m losing my mind.

I spot some tasty-looking blackberries. Sweet! What’s this? A wee calf abiding in the undergrowth. Oh, hang on. She’s separated from the herd we met earlier. Where’s her mum? The calf is still, silent, and breathing very fast. Does that mean she’s stressed?

We wander about and find some people: “Do you know anyone from the farm? There’s a lost calf.”

They call the farmer. The calf is only two-days-old and not in a good place. The farmer arrives on a quad bike rescue mission. Cheers all round.


I bung some batch cooking into the office microwave. Ding!

Sit down at desk.
Triage emails.
Shovel in food.

So fast, I don’t even taste it.

We find a cafe. Coffee and cake you say? Okay, I reckon we’ve earned it. The weather is perfect. One of those warm, late summer days you could sit in forever.

We share some banter with the people at the next table. They’re cyclists, too. Lovely couple, we swap stories and spin yarns. I’d never have met them in my old life.

One last push

It’s late afternoon. There’s still an email mountain to climb plus the work I was actually meant to do today. The deadline is as immovable as those cows will be in my future.

I text Mrs Accumulator to say I’ll be back after she’s gone to bed. I’m not sure I can keep going like this.

My friend says: “I’m not sure I can keep going.” The gradient hurts like a chemical burn.

I can see on the GPS that flat land is just around the bend:

“Not far now…” [Gasp]
“Keep going…” [Wheeze]
“You can do it…” [Kill me now]

My companion takes the lead. God, if he’s going to do this then so am I.

We made it! We’re cackling like eejits.

Who cares that we got to the top? Only us. We’re not setting any land speed records but we didn’t give up.

What a day: pre-FIRE vs post-FIRE

I’m back home in the dark. The gauge on my spiritual oxygen tank hovers in the red zone.

My mind has been sand-blasted to sterility. I don’t want to talk. Which is lucky because Mrs Accumulator is trying to sleep.

What kind of life is this? I suppose I’m fortunate to have a job.

I’m back home in the sunshine with loads of energy still in the tank. My mind is buzzing and my spirits soar like a gospel choir.

I tell Mrs Accumulator about the cows. And I tell myself to remember.

I have the good fortune to live in a beautiful part of the world and have friends and family to share it with. What more do I need?

Take it steady,

The Accumulator

Financial Independence Retire Early.

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The investor’s lifecycle

The following article on the investor’s lifecycle is an extract from Invest Your Way To Financial Freedom – the new book by popular bloggers and friends of Monevator, Ben Carlson and Robin Powell. Invest Your Way to Financial Freedom is out on 28 September, but you can pre-order your copy at Amazon today.

As we write this book, Ben is feeling very sensitive about an imminent landmark birthday. Robin, meanwhile, would love to be 40 again so isn’t as sympathetic as he might be.

One thing we can agree on, though, is how quickly the years go by the older you become, so be sure to make the most of life whatever age you are.

Even in retirement, most people tend to have some exposure to the stock market. Depending on the actuarial charts you use, current life expectancy in Britain for someone in their mid-40s in 2020 is somewhere around 84 for men and 87 for women. So, if we live to that sort of age, both of us expect to be investing for several decades yet.

Realistically, Ben will be investing for another 40 years or more. In that time he’s expecting to experience around ten more bear markets, about half of which will constitute a market crash in stocks. There will also probably be at least seven or eight recessions in that time as well.

Can he be sure of these numbers? You can never be sure of anything when it comes to the markets or economy, but let’s use history as a rough guide on this.

Over the 50 years from 1970–2019, there were seven recessions, ten bear markets and four legitimate market crashes with losses in excess of 30% for the US stock market. Over the previous 50 years from 1920–1969, there were 11 recessions, 15 bear markets, and eight legitimate market crashes with losses in excess of 30% for the US stock market. The figures for European markets, including the UK, are fairly similar.

Bear markets, brutal market crashes and recessions are a fact of life as an investor. They are a feature, not a bug, of the system in which we save and invest our money. You may as well get used to dealing with them because they’re not going away anytime soon. They can’t go away, because the markets and economy are run by humans and humans always take everything, both good times and bad, too far.

The risk of these crashes and economic downturns is not the same for everyone though. How you view the inevitable setbacks when dealing with your life savings has more to do with your station in life than how scary you think those times are. Risk means different things to different people depending on where they reside in the investor’s lifecycle.

When you’re young, human capital (or lifetime earning potential) is a far greater asset than your investment capital. If you’re in your 20s, 30s or even 40s you still have many years ahead of you as a net saver and earner, meaning market volatility should be welcomed, not feared.

There’s an old saying that the stock market is the only business where the product goes on sale and all of the customers run out of the store. Your actions during down markets have a larger say in your success or failure as an investor than how you act during rising markets.

Down markets lead to higher dividend yields, lower valuations and more opportunities to buy stocks at lower price points. It may not feel like it at the time, but if you’re saving money and putting it into the stock market regularly, more opportunities to buy stocks at lower price points is a good thing.

The problem is during a market crash, it will always feel like it’s too late to sell but too early to buy. If time is on your side, you shouldn’t worry about nailing the timing of your investments, especially during down markets.

The good thing about being a young person is you don’t need to worry about timing the market to succeed. You have the ability to wait out bear markets since you have such a long runway in front of you.

The important thing for you is to keep saving and investing regularly, no matter what is happening in the stock market.

People who are nearing the end of their working lives, on the other hand, are lacking in human capital, but they should, in theory, be sitting on plenty of financial capital. People are living longer, meaning the management of your money isn’t over when you retire.

But you have to be more thoughtful about how your life savings are invested at this stage of life because you don’t have nearly as much time to wait out a down market, nor do you have the earning power to deploy new savings when stocks are down by buying when there’s blood in the streets.

Market risk not only has different connotations depending on where you are in the investor’s lifecycle, but also how your personality is wired. Your risk profile as an investor is determined by some combination of your ability, willingness and need to take risk. These three forces are rarely in a state of equilibrium so there will always have to be some trade-offs:

1. Your ability to take risk involves your time horizon, liquidity constraints, income profile and financial resources.

2. Your willingness to take risk involves your risk appetite. It’s the difference between your desire to grow your wealth and your desire to protect your wealth.

3. Your need to take risk involves determining the required rate of return necessary to reach your goals.

Those who are unprepared for retirement may need to take more risk in their portfolio to achieve their goals, but they may not have the willingness or ability.

Those who have more than enough money saved may have the ability and willingness to take more risk to grow their wealth, but they may not need to because they have already won the game.

Rarely do the planets align when it comes to figuring out the right investment mix, but the good news is there is no such thing as the perfect portfolio. The perfect portfolio only exists with the benefit of hindsight. And even if the perfect investment strategy did exist, it would be useless if you couldn’t stick with it over the long term. A half-decent investment strategy you can stick with is vastly superior to an extraordinary investment strategy you can’t stick with. Discipline and a long time horizon are the big equalisers when it comes to financial success.

Your ability to withstand losses in the market and stay the course with your plan come hell or high water comes down to some combination of time horizon, risk profile, human capital, temperament and ego. If you don’t understand yourself, your circumstances and your deficiencies when making decisions about money, it’s impossible to truly gauge your tolerance for risk.

Invest Your Way to Financial Freedom by Ben Carlson and Robin Powell will be published by Harriman House on 28 September. But you can pre-order your copy right now!

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