Evolution

Financial origin stories are the flavour of the month and I’ve enjoyed reading about the geneses of my blogging peers. Yet when it came to writing my own I’ll confess to a fair dose of self-doubt.

There are over seven billion individuals on this planet, we are but cosmic ants. Our stories may be unique but the themes are not. Everyone is but a product of their experiences to date. Would telling ‘the MedFI story’ be a self-indulgent ramble? A traipse through events that are only perceived to have been significant in retrospect? Would my odyssey be meaningful prose or banal wittering?

These doubts arose because my own pecuniary epic is indeed anything but. There’s no inspirational bolt from the blue. No Archimedean eureka. No sudden financial enlightenment. No Herculean effort to overcome improbable odds. No terrifying or exhilarating life event that sparked fiscal renaissance. No instinctive precautions taken against the woes of prior financial mishap, experienced first or second hand. It’s hardly captivating stuff.

I think the term best used to describe my personal finance journey to date is ‘evolution’. It’s a series of trifling steps, mere belay points as I climb the financial cliffs. Each one is imperceptible – none altered my economic schema to a significant degree. The accumulated effect is the knowledge, understanding, attitudes and behaviours of today.

Rather than narrating a turgid chronicle from cradle to present, I’ll share a few memories with financial motifs instead. They come as snippets. Little staging posts on the road. Gently guiding, yet never pushing.

From the elders

One grandparent I’ve mentioned before. That brief chat about collecting currency over 20 years ago was perhaps one of the first nudges on the financial voyage.

Another grandparent was a stockbroker by trade, although we never talked money. There is one financial pearl that I’ll credit him with though. At the height of the Global Financial Crisis I recall one of my parents seeming strangely calm about ‘the end of days’ (as it seemed then):

“These things go in cycles; that’s what grandpa has always said. It’ll all come and go again, probably many times in your life.”

I wouldn’t begin investing for more than a decade, but that core piece of knowledge has provided comfort and steely resolve against the ups and downs of the stock markets since.

Look after the pennies and the pounds will look after themselves

Who knows when I first heard the phrase. Perhaps taking the adage a bit too literally, young Master MedFI looked after the pennies indeed. While others put theirs in car cup holders, or said “keep the change”, or lost them down the back of the sofa, I kept them. Every penny from every transaction. Others’ too if they weren’t inclined to waste their energies on the slender, copper-coloured discs.

I don’t recall how long I collected for, probably five or so years. There were jars of pennies bustling for space in my bedroom. I remember the metallic smell as I tipped them out all over the carpet, a small mountain of 1p and 2p coins, before organising them into neat stacks.

I’m unsure how valuable my penny collection was. It must have been in the region of £30 – a trivial amount in many respects. I suppose the process of saving, storing, counting, bagging, banking and then checking with glee the new cash in my account was formative to some degree.

Delayed gratification

I wanted an Xbox. I wanted it to be mine alone, not one to be shared with siblings. So I saved: pocket money, baby sitting, tutoring, Christmas and birthday gifts, jars of pennies. It all went towards my goal. All other spending halted as I held on to the ever-closer day when I could buy it. When it arrived, it was fantastic. My console, truly earned.

[Author’s note: re-reading this I fear I sound like some sort of gaming console Gollum. That’s probably a half-truth].

The end product of three years’ saving was far superior to one that had, say, come out of Santa’s knapsack. The console is long since retired, but that experience of saving towards a goal has foreshadowed my MO of today.

Self-control

University: a day spent hungover as sin. Head pounding. Nauseous. Water down the hatch, water quickly back up the hatch. I’d check my phone to make sure I didn’t send any aberrant texts – no damage done there. Instead it was the debit card that took the hit. Who in the bar did I not buy a drink for?! A Saturday night roundhouse kick to the bank balance, on top of Friday’s. And Wednesday’s. And last week’s. Better control was needed. Time to go retro.

The debit card stayed at home. A £20 note accompanied me out. Sometimes there was enough money left for the night bus home. Sometimes I would have to walk for hours across the city. Overall I was less hungover. Fewer Jaeger bombs? Or more cooling off time as I sauntered through the streets in the small hours? Either way there was fun and finance in greater harmony; quality and quantity.

A big slice of humble pie

I was returning from abroad. A fourteen month Antipodean sojourn where work was work and life was life, rather than intermingled. Despite the ‘no holds barred’ approach to adventure I had managed to save a fair amount too. I could spend at will and still managed to save?! I was a financial genius! Sovereign of my fiscal kingdom, who could match my pecuniary prowess?

I did some research into how to get the money home in the most cost-efficient way. Incidental link clicking followed. Then some more… and down the personal finance rabbit hole I went. A brilliant expanse of knowledge, hitherto unexplored, began to open up. The realisation dawned that the king had no crown. A prince of saving perhaps, a pauper of financial knowledge for sure. There was no major coup de grace to the way I ran my finances, more of a satisfying re-jig of affairs.

This lesson, about the limitations of my own financial knowledge, is something that I come back to frequently. Sometimes it’s just a short mutter under my breath as I try and ground myself: “you don’t really know what you’re doing”. Other times it’s fuel on the curiosity fire, as I seek to push the boundaries of my understanding.

If I had been blinkered to much of the world of personal finance, others must surely be too. And so this blog was born. On the one hand MedFI was created, a vehicle and nom de plume through which I can share my opinions and research on all things financial. On the other hand it’s merely the latest step in an organic, inexorable growth. An evolution.

TTFN,

Mr. MedFI

Am I Diversified Enough?

This question emerged from the milieu of my cognitive stew whilst in the shower. The knee-jerk part of my brain, the fast-thinking portion that doesn’t like to dwell spat out a “yes” and moved on. The more ponderous parts of my cerebrum latched onto the question, and I’ve been mulling it over ever since.

Diverse Investments

I would hazard that most readers are well-versed in the benefits of taking a diversified investment approach, the ‘only free lunch in investing’. At its core it’s whatever the opposite of having all your eggs in one basket is. Your future omelettes are spread between a multitude of wicker storage vehicles – if one of them is dropped you won’t end up with the contents all over your face.

From a geographical standpoint, I’m fairly well spread. A benefit derived from using a true global index tracker fund for the majority of my equity investments. When my total wealth is taken under consideration I’m perhaps a bit under-staked in ‘Muricah. Equally I’m probably carrying a bit more UK exposure through other cash holdings. Neither one a perilous situation to be in.

What about asset class diversification? You can find all sorts of funky portfolios online, that have spreads right through different asset classes. The overwhelming majority of my invested wealth is (shock horror) in equities. One could argue that I’m under-invested in equities – I know others are all-in on this asset class. The 100-age rule of thumb is much too conservative for my own appetite and a selection of my blogging peers approximated a 105-age rule.

My asset class diversity will remain low for the foreseeable future. Select equities, bonds, cash, commodities or cryptocurrencies could take the form of ‘satellite’ holdings at some point, but not at this juncture. Other sexier riskier asset classes are less likely to feature. For example, P2P remains in my bad books – its risk-reward balance is tipped the wrong way for my liking and I’m staying clear.

P2P lender Ratesetter was acquired by Metro Bank in 2020. Now, following a year of reduced interest to protect the provision fund, all loans will be purchased by Metro Bank. While investors will get their money back, the interest that was lost to prop up the provision fund will go to Metro Bank instead.

Diverse Income

Multiple income streams are beneficial for similar reasons as having diverse investments is. I happen to be in one of the most secure professions there is. It’s been around for thousands of years. It’s universally necessary, especially so at the moment. My skills translate across countries and cultures. The security is a blessing for sure; I’ve been fortunate enough to not have given my income stream a second thought throughout the Covid-19 pandemic.

This is only partially reassuring though, as I’m reliant on this one role for 100% of my income. If I was stopped from being able to practice medicine tomorrow, it would cut my cash flow to £0. That, to me, seems like a stark vulnerability. A gaping hole in my financial Death Star that a pesky X-wing could proton torpedo at any moment. Admittedly such an occurrence is unlikely, but even if the chance of lightning striking is rare it doesn’t mean we should waltz outside with a brolly in a rainstorm.

Occupations most likely to be automated in the near future. Medicine represents the least likely – the navy blue circle furthest left on the graph. Source: ONS.

Medical professionals are highly sought after, highly employable. For the time being. Mr. Bucket can attest to the unemployability created by the rise of the machine. Although medical practitioners are the group least at risk, the ONS still puts 18% of jobs at risk of automation. I rate the likelihood of my professional career being cut short by robotic intervention as ‘exceedingly low’, but definitely not ‘zero’.

What if there are significant changes in the way healthcare is delivered in the UK, which makes me less or un-employable? What if, in the future, I don’t want to be a doctor anymore? Overall I think my income diversity is poor. Definitely food for thought.

Diverse Retirement Funding

A lone strategy for retirement finances leaves one open to a single, critical, financial blow. For example, a box full of cash is an asinine choice for retirement funds as it’ll be decimated by inflation, moths, mould, floods, fire and the light-fingered. Those outwith FI circles are presumably relying on their workplace pensions ± state pension as their source of income in retirement. If the plan is FIRE, a more layered approach is usually required.

The NHS Pension remains a strong choice for the retirement finances of the NHS professional. I’ve made no secret, however, of my concerns about its future guise. Why should I be all-in on the NHS Pension? Why lay all my money on it and then bite my nails to the quick hoping it doesn’t succumb to some meddling politicos in the future? No, it makes no sense to strive for income and investment diversity only to bet it all on a single horse.

The four horsemen (of retirement finance). A blend of tools to finance my retirement will surely be resilient against most events. Perhaps not the apocalypse though.

My (early) retirement finance plan is by no means unique, complex or even that exciting. The usual four horseman appear – the NHS Pension, a SIPP, a LISA and a stocks & shares ISA. They provide temporal flexibility by being accessible at different ages. They provide resilience against extraneous interference – it would take sweeping changes in financial policy to bring them all to their knees. They provide diversity in how they grow – the NHS Pension’s accrual/revaluation vs. the different funds in the others. The others protect me from the actuarial reductions for taking the NHS Pension early. The NHS Pension protects me from the whims of the stock markets. Oh and there’s potentially the state pension donkey braying somewhere too.

I think that this is about as robust as I can make my retirement plans for the moment. It certainly feels a much stronger set up when I compare it to my singular income stream.

“Too much diversification can dilute what you’re trying to do by distracting you from the true purpose of your money which is to grow in as low-cost and low-tax environment as possible so as to meet your goals.” Pete Matthews of Meaningful Money.

Diverse Interests

There have been a handful of retirement U-turns in the FIRE community recently. The factors driving these about-faces is a story for another time. I’ve been thinking about how to avoid a similar fate. Not that returning to work post-FIRE is wrong, a failure, hypocritical or really negative at all. If that’s what I end up doing too then so be it. I’m simply keen to be intentional about my plans.

I’m fortunate that medicine is a diverse career. It’s possible that I can keep things fresh and engaging by following different branches as time marches on. It might be that a tapered working schedule helps me ease into retirement, or more of a FIWO approach than FIRE. Or a transition from clinical to non-clinical work. There are options for sure.

Do I have enough other interests to keep myself occupied? I think so. I won’t regale you with a full list of my other interests and hobbies. A recent ten day period stuck indoors yielded a small degree of ennui, though I was hamstrung by not being able to engage in any outdoor activity, see friends etc.

I can always learn new tricks too. If you’d have told the Mr. MedFI of five years ago that he’d be blogging, about personal finance no less, he’d probably have laughed out loud at the surreality of the idea. I don’t predict issues with a post-FIRE lifestyle, but I guess who ever does?

Verdict

Am I diversified enough? Not quite. I’m content with a diversely invested portfolio and a retirement plan that’s set on multiple pillars. There’s vulnerability though in a total reliance on one source of income. Overall I give myself a solid B. Not too shabby, but definitely room for improvement. For that, I’ll have to engage that slow-thinking brain a little bit more. In the meantime, are you diversified enough?

TTFN,

Mr. MedFI

The First 100,000

Milestones are an important part of making progress. They break up a task into more manageable psychological and material chunks. They’re motivating; you can celebrate when they’re reached even if the bigger victory isn’t yet won. Yes, milestones are generally a good thing, a marker on the road to where you’re going. There are conversely some waypoints that you never wish to pass.

Personal finance is, naturally, littered with numbers. Savings rates, FI numbers, net wealth etc. These targets will be variable according to the individual, though there is one pecuniary milestone that consistently crops up  – one hundred thousand.

$100,000

Charlie Munger supposedly quipped that “the first $100,000 is a bitch” back in the 1990’s. Attaining an invested wealth of $100,000 has since become a bit of a personal finance cliché. The idea is to do whatever it takes to get there ASAP, as once you’ve accrued that much things are a bit easier thereafter. There are blog posts aplenty describing how the author reached $100k; how they scrimped, saved, begged and borrowed to reach this milestone. They’re all of a similar vein – you simply follow all the usual personal finance/financial independence tropes as found in any listicle. Spend less, earn more and grow your invested assets consistently at 10%/year. Job done.

In equal abundance are articles describing the reasons why this “magical” number is of particular importance. The most frequently quoted reason is just window dressing for compound interest. One article asserts that $100k is special because:

“…it takes 7 – 8 years to save the first $100k no matter what annual interest rate your savings grows at. This is because the amount you save matters far more than your investment returns when you’re just starting out.”

Although I agree with the second half of their statement, the initial part is only true because they chose $10,000 as the annual investment amount. Perhaps deliberately, perhaps arbitrarily. If they had chosen $5,000, then the spread of duration would be 12 – 19yrs. For $25,000 annual investment then it’d be <4yrs regardless of interest rate.

The time taken to reach £100k milestones by saving £500/month at 5% interest rate. The time to reach successive £100k amounts is less each time; a demonstration of the power of compound interest.

Confuting the mystical properties of £100k

One argument is that by reaching this milestone you’ve established good financial habits, which are likely to continue. Therefore you’ll be financially successfully in the long run. Why this applies specifically to £100,000, but not £50,000 or £75,000, I’m not sure.

I do quite like Captain Vimes’ ‘boots’ theory of socioeconomic unfairness as applied to the £100k mark. Once you reach that level of wealth, you’re able to afford better quality products (e.g. higher quality boots) that, in the long run, save you money. Hence wealth begets wealth.

The ‘returns are more significant’ rationale for £100k being special is interesting. On the one hand, having £5,000 interest (5% on your £100k) is intuitively much more attractive than having £50 (5% on your £1,000). On the other, at the end of the day it’s the same 5% interest. Generating £10,000 in interest sounds even better though; why isn’t £200,000 the magic number?

Is £100k exalted because it’s a nice, round number that balances achievability with the sense of being ‘a lot of money’? About half the people in the UK have a net worth of >£100k although, given the UK’s penchant for property, I would hazard that those with £100k invested are far fewer in number. So perhaps that makes it a lot of money. Perhaps there’s a reason people dream of being millionaires instead though. If you take the average UK take home pay (~£2,000/month) and the average UK monthly savings rate (8.2%), it would take nearly 25 years to reach the £100k milestone at 5% interest. I guess that makes it broadly achievable too?

Just…because

I totally agree that having milestones, financial or otherwise, is an enjoyable and productive framework for your personal progress. I’m just not sold at all on the $100k fascination; it’s a fairly arbitrary number. Manipulatable as you see fit:

Munger is American, so actually here in Blighty you would only need £72,000 to have $100,000. Sorted.
But he made his remarks in the 1990’s…so you actually need closer to $200,000 in today’s money. Ah.
Although if we work in base 13 you’d only have to accrue £36,694 for the base 10 equivalent. Sweet.

Will I enjoy the day that I have £100k of invested wealth? Of course. But no more so than £50,000 or £200,000. Munger is a man of infinitely greater fiscal understanding and experience than me. But the idea that I should work myself into the ground to obtain $100k then, and only then, ‘take my foot off the gas’ seems silly. Why not try to find a level of expenditure that allows me a quality of life that feels right, and then be consistent in my save/spend balance thereafter? I might get to £100,000 of invested wealth more slowly, but I’ll enjoy the journey a bit more.

A milestone you never hope to reach

A similar milestone approaches, a most unwelcome one. At the time of writing the UK death toll from Covid-19 is nearing 100,000 people. Akin to filling all the seats in Wembley stadium, cramming another 10,000 people onto the pitch and then all of them dying. It’s the entire population of Bath dying. 150x more deaths in a single year on home soil than British military casualties in the Iraq and Afghanistan wars combined.

200 vaccines a minute is fantastic, but there’s still an admission to a UK hospital with Covid every 30 seconds. There are not enough physical bed spaces to accommodate this tsunami of Covid positive patients. It’s led to patients being moved between hospitals all over the country, to hospitals reducing the amount of oxygen they give people because they’re simply running out. The military have had to be drafted in to help in some places. We don’t have the capacity to give everyone everything, so we have to select who gets what and who doesn’t.

In the hospital, we’re not dealing in gross statistics such as “a thousand deaths a day” or “100,000 dead from Covid-19”. We’re caring for individuals. It’s not “people aren’t getting the care they should”, it’s that person in front of you. A husband, a mother, a brother, a daughter. Your wife, your father, your sister, your son.

Staff are frustrated, helpless and overwhelmed. There’s the increasing frequency of having to make ethically difficult decisions; Sophie’s choices of a sort. There’s the horror of seeing people fighting for their life. Not just the elderly or infirm, but otherwise healthy young men and women – the average age on our intensive care unit is in the 40’s. A proportion will never leave the unit alive.

A single straw away

“I’m waiting for the headline that says: ‘Doctor takes own life because of the pandemic’. It is going to happen. If not today, it’ll be soon because they are on their knees – and they want people to know that.” From an interview on BBC News.

No wonder then that nearly half of surveyed intensive care staff met thresholds for mental health issues after the first wave of Covid-19. It’s not just “staff are suffering”. It’s your colleague telling you that she cries when she gets in the car to go home. Every day. It’s your friend acting out, being uncharacteristically aggressive and ill-tempered. Staff calling in sick because they can’t face coming to work. It’s people who are on the edge; their camel’s back one straw short of shattering.

I highly recommend reading this post written by a doctor about their Covid experiences. It makes for heart-breaking reading. Their experience is not unique; it’s all day and all night for staff up and down the country. Even with vaccines and lockdowns, these sorts of experiences for NHS staff are not going away anytime soon.

Lars Kroijer’s optimistic look at the Covid endgame belies the reality for the frontline individuals who are thoroughly spent. Their cognitive, emotional and compassionate reserve is sorely depleted. Yet soon they’ll be asked to pick up the slack again to tackle the backlog of work that Covid has merely delayed. All the while the future of the health service itself remains uncertain.

A step at a time

Never mind the first $100,000 being tough – Munger obviously wasn’t reading the Washington Post in the 1980’s, where a young lad wittily remarked that “life’s a bitch, then you die”. Set financial milestones sure, but be mindful of the arrival fallacy. Save money, but perhaps not at the cost of living a life with little quality. Aim to augment your wealth, but prioritise enriching your life.

All roads were once said to originate from the milliarium aureum, the golden milestone in Rome. Whether its investments or Covid, I’m not hanging my hat on arriving at a gilded final waypoint. I’ll settle for reaching the next marker on the road. I’m a fair way short of £100k, but I’ll get there eventually. Covid isn’t going away tomorrow, but some progress is enough for now.

TTFN,

Mr. MedFI

Financial Resources for NHS Professionals

One of my aims for the blog is to improve financial literacy among healthcare professionals. Although the internet houses a plethora of financial information, deciphering which of it is relevant to you can be a bit of a struggle. This page will therefore serve as a repository for financial resources that are applicable specifically to doctors and other NHS professionals. As always please read the disclaimer.

If you know of a resource that you think should be featured on the page – get in touch!


Pay


Tax

  • Medics Money has published a free guide on how to claim tax relief, and their tax rebate calculator will help you estimate how much you might expect back from it
  • The BMA also has a page on tax relief
  • A tax guide, as well as other financial and business resources, for doctors in private practice can be found over at Independent Practitioner

NHS Pension


Other

  • This spreadsheet can help you keep track of locum pay (credit to Reddit user Dr. Davish)
  • Medics Money could help put you in touch with a medic-savvy independent financial advisor or accountant
    
  • The BMA has guidance on charging fees
    
  • This article could help with financial aspects of being a student nurse
    
  • This near 25 year old BMJ article, although hopelessly outdated in most respects, has some ideas about a framework for improving your financial hygiene

Cash, currency and collecting

“Never that foreign stuff MedFI. Only English.” were the words of advice from my grandfather, spoken in his gruff yet somehow also sing-song Celtic tones. The irony that the statement came from an immigrant was lost on my boyhood self. Instead there was only excitement and wonder as he showed me the contents of a small tin box. “It can be yours, if you’re interested in it?”.

This early experience must have imprinted on the MedFI psyche because for as long as I can remember I’ve been a collector. Not of stamps, nor Beanie Babies, nor Pokémon cards or even comic books. But of currency. I don’t remember how I replied that time at my grandparents’ house but it must have been in the affirmative, as sure enough I would later inherit the small collection of old British banknotes.

The ridiculous Zimbabwean $50,000,000,000,000 note. Make. It. Rain.

Cash and currency

Humans are really just bipedal magpies; we love to collect things that are ‘cognitively’ shiny. The idea that you can collect money still tickles me – isn’t that just saving? Except you’re saving things that are often useless from the point of view of being legal tender. Historic scraps of paper that were once of value in a system that’s now evolved. Or gone extinct. You’re holding on to items that have reached the nadir of their value in the hope that they’ll regain it, or even exceed it, in the future.

Perhaps it’s how we’ll feel about digital currency in a hundred years. People paid for things how?! Who saw the value in bits of polymer and ink? Already the idea that people used cash, physical money, for the majority of their transactions must be quite foreign to children. Maybe they only see banknotes when they’re stuffed into the birthday or Christmas card from relatives. Or maybe even nan has worked out online banking and it’s all done via the sterile silence of the ether now. Has the tooth fairy upgraded to chip and pin or does she still deal in coins? Perhaps inflation means she doles out notes now anyway.

Author’s note: it was at this point whilst writing this post that I resisted the temptation to Google the price of human teeth.

The only time I handle cash nowadays is at the hairdressers, having to make a lone withdrawal to pay for the short back and sides. I’m always curious as to whether it’s because they cook the books as well as cut the hair. Not really a question you ask the bloke wielding a razor blade by your vital neck structures though.

Cash is going, going….and at some point the economic arbiter will bang their gavel and declare it gone. Perhaps that’s part of the reason I enjoy my banknote collection. It’s there. It’s visceral, tangible, real. Unlike the characterless numbers on a screen that dictate my bank balances, investments and debts. Something different. Different can be fun.

Collecting

The economics of why £100 is worth more US dollars on one day compared to the next is lost on me. Mentally filed away as “don’t need to know” and therefore not an avenue of further inquiry. I do, however, understand that rolling the Forex dice is a dangerous game. My own experience trying to transfer moderate sums of money trans-continentally wasn’t enjoyable. Much time spent checking exchange rates many times a day or trying to divine the future path the exchange rollercoaster would take. In the end I didn’t lose money, but I certainly didn’t feel like I’d won either. An experience overall best avoided again. Forex is not a game I want skin in, but foreign currency still holds appeal.

A 500,000 Mark note issued by the Reichsbank in 1923. Another example of hyperinflation causing outrageous banknotes to be issued. A loaf of bread cost 200,000,000 Marks, so it would take 400 of these notes to buy it.
The first £1 note issued by the Treasury in 1914. These are now worth many hundreds of pounds, if not a thousand or more.

My experience with collecting currencies is far more pleasant. I ended up ignoring my grandfather’s advice; the 21st century is after all a global place. My collection reflects that, with banknotes from countries on six continents. An Antarctic dollar would be a nice addition. I did make it a rule that, unless it’s something excitingly different or no longer available, I don’t just buy banknotes to add to the collection. I have to earn it through the experience of having travelled to the place myself or be gifted it by someone who has. When I look back through the collection I enjoy that the notes have a story to them. That time I travelled to country X. That time my friend was kind enough to think of me by bringing back currency from country Y.

The old British currencies are still my favourite though. Not just out of sentiment, but for the history as well. Notes old enough that good old ‘Liz doesn’t even feature on them. Notes that were issued as an emergency during World War Two. Notes from before the decimalisation. A history, one that lines on a bank statement don’t tell. Can’t tell. People are willing to pay for that slice of history – the more historical the better. Old notes can go for staggering sums.

My own collection isn’t that valuable. I’m not in it for the money (although technically I am in it for the money). Unless there’s a future fetish for incomplete sets of international currencies I won’t be sending my children to university with my own idiosyncratic collection. Maybe if they reinstate the old Weimar Republic notes at their face value I’d splash out a bit. I could nearly retire off my 500,000 Mark Reichsbanknote…

TTFN,

Mr. MedFI

Westminster wallies: a golden false start to 2021

It only took fourteen days for my prediction to come true. Rule-makers turned rule-breakers. Quelle surprise. The politician in question was undoubtedly under surveillance by journalists hoping to generate an easy headline, unlike the rest of the Toms, Harrys and Dicks that are flouting the rules without such scrutiny. Whether you’re a hypocritical government official or not, is it so hard to stay indoors? It’s the middle of winter, dark for sixteen hours a day and there’s sod all to do anyway!

BoJo is rallying the troops, literally. Yet also metaphorically with his return to military-style rhetoric as he plans to give the nation a shot in the arm, literally. His army of vaccinators have been moaning about the litigious BS that was required to become qualified. I can entirely empathise – imagine having to re-do that long list of qualifications. Every. Single. Year. News that we can expect a return of the serenade of pots, pans and hands being clapped on Thursday evenings was met with snarky retort by my colleagues, struggling against a tidal wave of new Covid patients: “can’t they wash their hands instead?!”

Gold hunt

The furore over the latest surge in Bitcoin’s price continues. Yet instead it’s gold that’s seemed a bit more attractive after the shenanigans of 2020. Not that I’m a doomsayer, but the events of last year have definitely gnawed at the tiny (irrational) part of my brain that would want to be ready for sweeping changes to the way our lives run. I’ll probably hold off on buying gold for the time being though, especially as the price remains near its August (all-time) high. It is £170/t’oz cheaper than then though. Perhaps a doubloon or two wouldn’t go amiss?

If you’re not intrigued by my non-starter gold hunt, then perhaps a sovereign quest takes your fancy? (See what I did there?) Sovereign Quest is a new site that amalgamates the writings of select personal finance bloggers in the UK, Europe and Antipodes. It’s a sterling piece of work by Indeedably, himself one of the foremost financial bloggers in the country, so you should definitely head on over if it hasn’t crossed your radar already.

Inflating inflation

One of the perennial arguments for gold is its inflation-counteracting capabilities. I’ve looked at the evidence before and come out…unconvinced. I have, however, been fairly open about my concerns regarding the actual rate of inflation. This (admittedly US-centric) article that I came across in one of Dr. FIRE’s Wednesday reads has given me pause for thought on the matter.

As with any good scientist, I’m more than happy to be proven wrong by new data, and will definitely take the article’s points into consideration. I still remain sceptical over how representative the CPIH/RPI are of the true change in cost of living for the average Joe, though agree that hyperbolic descriptions of the ‘true’ level of inflation are unhelpful.

Whether inflation is 1%, 2% or 5%, however, it doesn’t detract from the fact that there is no hope of getting your money to hold its value in any bank account. Investing is not just a way of growing your money, but one of the last bastions for trying to stop it depreciating at the hand of inflation. Yeah, yeah I’ve said it before. But I’ll say it again because it’s important. That’s what the good folks over at Monevator do, telling you not to touch your global index tracker fund at every conceivable opportunity. They seem to be doing ok…

All the best to everyone for the year to come.

TTFN,

Mr. MedFI

Bin the resolution – try a Yearly Theme instead

New Year’s resolutions are awful. They mostly amount to, admittedly well-intended, hot air. The Banker on FIRE has already laid bare the pitiful probability of succeeding in your newfound resolve. Instead of crafting a single defining goal for the year 2021, one that you’ll have likely forgotten about come the start of Spring, why not try a Yearly Theme instead?

Fans of the podcast Cortex will already be familiar with the idea of the yearly theme. A yearly theme is…

“…an overall idea of how we would like to approach each year or season”

It’s a subtle slant on how you want to tackle the myriad challenges that crop up in your life each year. It’s how you’re driving the car, as it were, rather than the destination.

Specificity

New Year’s resolutions are sometimes discrete, specific goals to be achieved. Run a marathon. Lose 10kg. Sculpt a six-pack. Touch your toes. Some other physique-related benchmark (to undo the festive gluttony, no doubt).

The corresponding theme might be: Year of Health. There’s no absolute requirement to be a chiselled Adonis at the end of 2021. Rather, let the Yearly Theme colour your decisions. Is there a choice of foods? It’s the Year of Health so choose the more salubrious option. Did your friends invite you to a walk, cycle, swim, run or climb? Though the sofa is inviting it’s the Year of Health so get up and get out!

I hope you can see the subtle but powerful difference. 

Flexibility

If not discrete, resolutions can be hopelessly vague. Do more exercise. See more friends. Be a better parent, child, partner etc. Loose enough goals that you could mentally massage yourself into believing you’ve kept up your resolve. Or be forgotten about altogether. How many can honestly remember their resolution for 2020?

“But Covid happened Mr. MedFI; it blew 2020 out of the water and my resolution along with it!”

Yep, I get it. 2020 was different to how anyone expected. 2021 isn’t going to be all plain sailing either. Which brings us nicely to the other issue with New Year’s resolutions – they’re for a whole year.

A year is a long enough period of time that a lot can happen. What if your circumstances change such that your resolution becomes obsolete after a few months? Do you set a new New Year’s resolution? What about if your personal annual period runs April-April, August-August or October-October? A January-January resolution is poorly matched to your own mental model of how the year flows. 

Here the theme system comes up trumps again. You could make a Seasonal Theme, one for three months at a time. Malleable in the face of changing weather and changing circumstances. Or alter the time periods to be as long or as short as your need, to fit your life’s ebb and flow.

You could have one theme that touches all corners of your life. Or you could have more than one theme! A work theme, a home theme, a finance theme. In fact, if you’re reading this then you’ve probably been following a finance theme for a while already – financial independence. Although you might have some discrete financial goal (e.g. £1,000,000 by the time I’m 50 or some such), in FI(RE) you have a motif that’s influencing your everyday decisions. A theme for other facets of your life doesn’t seem so far-fetched, does it?

What to pick?

Much like a New Year’s resolution, your theme could be literally anything. To help get you thinking, here are a selection of themes, both historical ones of my own and ones from the Cortex subreddit discussion on the topic.

  • The Year of Less
  • The Seasons of Adventure
  • The Winter of Care
  • The Year of Honesty
  • The Year of Improvement
  • The Year of Yes
  • The Spring of Settling
  • The Year of Progress
  • The Year of Intentionality

You could even make your theme the Year of Following Things Through and actually stick to your New Year’s Resolution!

Instead of proudly proclaiming your (statistically doomed from the start) resolution, take some time to think about the clothes you want to dress 2021 in. What vibe do you want to carry through the year? What’s the theme of 2021?

I’m no fortune-teller, but I can say with some certainty that themes which lend themselves to vast amounts of international travel or close social contact are unlikely to gain much traction! Whatever theme you choose I hope it enriches your year, so as to counterbalance the bumpy road that surely lies ahead.

TTFN,

Mr. MedFI

Ho Oh No

What’s this? An early Christmas present?! How thoughtful! Is it a bicycle? Or a drone? Or that generic deodorant, aftershave & moisturiser trifecta? Nope. It’s a huge lump of Christmas Covid coal. A perhaps fitting cherry on top of a year that’s been far from trifling; a government announcement that takes the cake. How naive I had been to expect anything other than a Covid-tier torpedo sinking my personal Christmas ship before it’s even left the dry dock.

I expect that there’ll soon enough be reports of the latest pathetic Westminster hypocrite(s) to break their own rules, with some equally half-arsed excuse much like those before. Perhaps some were amongst those crammed onto every bus, train, vespa, horse and rickshaw leaving London on Saturday evening.

It’s inevitable that the hordes Indiana Jones-ing under the closing Tier 4 door will bring the Lurpak spreadable edition of Covid to the surrounding counties. The third iteration of the SARS Wars saga (Lockdown 3; Return of the Covid) is now due for release in early January 2021. Sigh.

Unsurprisingly the rest of the world doesn’t fancy our home brew strain, and has raised the drawbridge. At least the constriction of flow to/from the Continent is a good preview of the chaos that seems likely to unfold after the UK leaves the EU. In less than a fortnight. More sigh.

But enough grumbling, humbugging and sounding like a Grinch/Scrooge lovechild. Christmas will still happen. 2020 will still end. The current FTSE dip is irrelevant in the long term. The stringent impingement on my social activities just adds fuel to the FIRE. Indeed, I’ve put my remaining creative energies into a festive FI blogger poem. Enjoy!

‘Twas the night before Christmas, when all through the house
Not a blogger was typing, nor moving their mouse;

The Ninja all nestled in his Ikea bed,
Dreams of a smorgasbord filling his head;

Ad Otium hung baubles all over the tree,
Getting help with the angel from Sparkle Bee;

Weenie put out Santa’s cookies herself,
And also positioned the elf on the shelf;

The Ermine hung stockings, hoping to get
A visit from Santa down in Somerset;

Finumus prepared a banquet to eat,
A delectable meal, a gluttonous treat;

There was turkey and stuffing and sprouts for consumption,
Pigs wrapped in blankets by Fire V London;

Dr FIRE sang carols with Indeedably,
A Way to Less joined in harmoniously;

Adding a descant to the melodious three,
None other than Ken, of the Humble Penny;

GFF wrapped presents, all night and all day,
While cards were written by Kieran MacRae;

The Shrink, the Banker and Hustle Escape
Sipped mulled wine ’round Tuppeny’s Fireplace;

The three ghosts of Christmas floated by the door;
The Details Man, Investor and Accumulator.

And nobody spoke of bonds nor equities,
Of funds or investments or properties.

Not a whisper was heard of net worth, nor of wealth,
As they laughed and toasted each other’s good health;

Remembering what brings their lives quality,
Not seven figures, nor retiring early;

But friends and family, fond memories,
Embracing all of life’s frivolities;

In a year of such dismay the message is clear,
Prioritise life and those you hold dear.

Financial independence? That’s by the by.
Happy holidays all, Mr MedFI.

10 Outrageous Financial Predictions from 2020

Before the time of masks, quarantine and abhorrence for hand-shaking, the Danish investment bank Saxo Bank published ten “unlikely but under-appreciated” financial events that might occur during 2020. If there was ever a year for outrageous predictions to come true, 2020 seems like it could have been the perfect one! I’m sure, however, that those making them couldn’t have fathomed the topsy-turvy year that unfolded. Let’s see how their tongue-in-cheek predictions have held up…

1. Artificial intelligence becomes a dunce

Wrong!

The prediction was that diminishing returns on the performance of AI microchips would tank the SOX Index. The iShares SOX ETF did take a Covid-induced Springtime tumble, losing about 25% of its value. That’s been the only major blip, however, as the index has since continued to grow in value. At the time of writing, it was up 60% over the course of the past year.

The performance of the iShares PHLX Semiconductor ETF during 2020. Other than a brief dip in the Covid Crash, it’s been virtually all rise.

2. FAANG’s lose their bite

Wrong!

The idea was that stagflation would favour value stocks over growth stocks. They predicted that the iShares MSCI Value Factor ETF would outperform FAANG stocks by 25%. The performance of the ETF this year has left a lot to be desired:

The performance of a hypothetical $10,000 invested in the iShares Value Factor ETF. You’d be coming to the end of the year without significant loss or gain (-0.32%), but you’d have “enjoyed” a stomach-curdling ride along the way.

By comparison, the share prices of Facebook (41%), Amazon (76%), Apple (80%), Netflix (65%) and Google (32%) all rose. The Goliaths definitely won this round.


3. ECB 180 gives EuroStoxx a leg up

Wrong!

The European Central Bank was supposed to about face and reverse its endorsement of negative interest rates. The rate has instead remained both static and negative. Furthermore, an investment in the EuroStoxx index would have lost ~20% of its value. A far cry from the vaunted 30% increase 2020 was supposed to bring!


4. Big bad oil and gas outperform clean and serene energy companies

Wrong!

A spectacular misreading of the prevailing wind! Haven’t they heard that green is the new black? An iShares clean energy ETF has grown over 100% in the last year; the trend towards greener, cleaner investing continues. Conversely, the price of popular oil and gas ETF’s has dropped nearly 30%.

The performance of the iShares global clean energy ETF (blue line) against the SPDR Oil & Gas Exploration & Production ETF (green line) during 2020. Graph from Yahoo finance.

5. Loss of mojo leaves South Africa feeling not at all Rand-y

Halfway there!

They nearly got this one! The thought was that the Rand would suffer as the South African government bailed out utility company ESKOM. The currency did indeed slide to just shy of 20 Rand to the USD, but has since recovered such that it’s almost at its end-of-2019 value.

The exchange rate between South African Rand and US Dollars. At its zenith the exchange rate closed in on 20 Rand to the US Dollar, but this has receded to the levels seen nearly a year ago. Graph from xe.com.

6. Trump puts America first with new taxes

Wrong!

Predicting the next actions of Donald Trump is probably like trying to herd cats – impossible. Both an America First Tax and a rise in the yield of US 10-year inflation-protected treasuries failed to materialise. I can’t say that Trump was a total torpedo to the American economy in 2020 but, as we’ll see the back of his presidency soon, the less said about the narcissistic toerag the better.


7. Swedish stimulus sends SEK soaring

Halfway there!

Another forecast on FX nearly comes true. Although the foreseen “steep” rise in the value of the Krona hasn’t quite come to fruition, there’s definitely been a gentle slide in the right direction since the announcement of a 2021 budget boost by the Swedish government.

The exchange rate of Swedish Krona to US Dollars. From a nadir of over 10kr to the USD, the August announcement of a 2021 spending spree has seen the Krona rise in value. At the time of writing, it was nearing 8kr to the Dollar. Graph from xe.com.

8. Biden rides wave of women and millennials to victory; Big Health and Pharma implode

Halfway there!

Joe Biden did indeed win the US Election. The statistics seem to support the idea that he benefited from more votes by female voters (a 56% majority compared to the much narrower gap amongst male voters) and those under the age of 30. On the financial front, neither Big Healthcare nor Big Pharma took the 50% hit that was foretold.


9. Hungary “does a Brexit” – the Forint falters

Wrong!

Hungary remains a part of the EU, though with their recent veto of the EU’s budget and recovery package, there’s a non-zero chance of a Magyar migration out of EU circles in 2021. The Forint has decreased in value. Although 1€ now gets you 355Ft, rather than the 330Ft it would have done at the start of the year, this is still shy of the predicted 375 EURHUF spike that was predicted.


10. Novel Asian digital reserve currency decimates US Dollar

Wrong!

This prediction of a new Asian digital reserve currency, which reduces the US Dollar index by 20%, hasn’t come true. The US Dollar index has dropped by 8%, but not necessarily as a result of such competition. After my research into cryptocurrencies, I do think that the rise of national digital reserve currencies is highly likely. Indeed, an Asian digital reserve currency will invariably compete with the US Dollar.


Final score: 1.5 / 10

Verdict: Covidiots

TTFN,

Mr. MedFI

RIP RPI – pensions in the cross-hairs?

The Treasury has lined up the Retail Price Index (RPI) for a 2030 retirement. In its place will be the much wordier, and ultimately lesser in value, Consumer Price Index + owner occupiers’ housing cost (CPIH). The change has brought a modicum of grumbling, predominantly because of the negative impact on those with defined benefit (DB) pensions.

As with the NHS Pension, other DB pensions undergo annual revaluation to ensure that their value isn’t too sorely eroded by inflation. For a number of DB pensions, the amount of revaluation is linked to the RPI. As the (lesser) CPIH will be used from 2030, people’s pensions won’t grow as quickly and therefore will be worth less when they retire.

You might argue that the change for those with affected pensions is irrelevant, as CPIH is the measure of inflation. Therefore the value of these pensions will still rise with inflation and won’t succumb to its sapping effect. Two points in rebuttal of this. Firstly, I’ve made clear my thoughts on true inflation before. Secondly, I’d still be miffed if my pension was being revalued by a lesser amount than it had been previously.

PR hot potato*

The NHS Pension is not impacted in the same way, as its revaluation is by Treasury Orders + 1.5%, not RPI. Although Treasury Orders can in theory be whatever HM Treasury decides, it is often near enough the Consumer Price Index (CPI; not to be confused with the CPIH!). This exempts the NHS Pension from the effects of the aforementioned RPI – to – CPIH changeover.

Although Thursday clapping is no longer de rigueur, and windows are noticeably deplete of rainbows, the NHS is still an apple in the eye of many as Coronavirus Wave II: Covid Strikes Back continues. Healthcare workers have been immune to the recently announced Public Sector pay freeze; some may see a pay rise. Government spin doctors have probably decided mixing the healthcare workforce up in this latest fiscal rejig is a PR battle better not fought. ‘Tis better not to bite the hand that heals you.

It would, however, to be naive to think that healthcare professionals will exhibit this immunity indefinitely. No, the NHS is a black hole of public spending that won’t go away. It mayn’t be in the next few years, but at some point in the future the axe will fall on the pensions and/or salaries of NHS workers.

Many of those reading will be 2015 NHS Pension scheme members. This is the third and least generous iteration of the pension in the last 20 years. A future reworking of the numbers seems inevitable. Only the purest of optimists could envisage a potential rehash improving the conditions of the scheme.

More legs to stand on

I think that changes to the NHS Pension are a certainty. After all, the government has to pay for all those nepotistic PPE contracts somehow. It makes, in my opinion, putting all your retirement eggs in the NHS Pension basket a dangerous game to play.

Don’t get me wrong, I still think it’s a valuable asset to have and I’ll continue to be a member of the scheme. I am, however, diversifying my post-retirement funding in much the same way as I keep my investment portfolio diversified. It’s not all NHS Pension. It’s not all SIPP. It’s not all ISA. It’s not all rare, mint condition Beanie Babies. It’s a blend; a multi-faceted backstop designed not just to maximise returns, but to be a resilient and flexible strategy as well.

TTFN,

Mr. MedFI


*For those in the medical field, I’m sure the phrase PR hot potato brings with it a hilarious mental image.