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!
“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.
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 thingshow?!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.
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.
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…
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?!”
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.
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…
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.
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.
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.
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.
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
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.
2. FAANG’s lose their bite
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:
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 180gives EuroStoxx a leg up
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
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%.
5. Loss of mojo leaves South Africa feeling not at all Rand-y
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.
6. Trump puts America first with new taxes
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
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.
8. Biden rides wave of women and millennials to victory; Big Health and Pharma implode
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
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
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.
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 trueinflation 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.
*For those in the medical field, I’m sure the phrase PR hot potato brings with it a hilarious mental image.
Focus is a noun most frequently used in a positive context. As is often the way there are a host of idioms exalting such a state of mind: being on the ball, getting in the zone, putting your nose to the grindstone, knuckling down.
Focus is an example of the ‘system two’ thinking that counterbalances our emotional, spur of the moment, rapid-response thought processes. A necessary part of the way our brains work. Perhaps it’s what separates the truly elite from the merely good – pure focus on being the best, a gaze undeviating from the prize, the goal, the dream.
Sometimes, however, focus can be detrimental too.
When I first stumbled upon FIRE, it was utterly engrossing. Not merely as a principle but also as a mode of living. Financial prudence? Generating free time by reducing (/eliminating) ‘normal’ work? Eschewing wastefulness and consumerism? It was a path inherently attractive to me. My focus narrowed to start the ball rolling. Investments meticulously set up. Spreadsheets lovingly crafted. Spending wholly reigned in.
Yet it didn’t slack off once I had set the wheels in motion. I found myself so consumed by obtaining a state of financial independence that I cut the amount I was spending right back to bare basics. As if I could achieve it that very year through my extreme frugality. Nothing else seemed to matter, I could only focus on the dream of being financially free.
All save and no spend makes Jack a dull boy. Life became a drab shade of grey. I had missed the point. I had gone too far. Scrimping and saving was undoubtedly doing my financial quantity some good, but to the (severe) detriment of my life’s quality. Some variety is, after all, the spice of life.
I can’t remember what broke the stranglehold of my FIRE-focus, but I managed to relax back into spending a bit more with obvious positive consequences. The curtains were drawn back and the sunshine of life returned. I’ve since maintained that happy medium, enjoying a satisfying progression to financial independence whilst maintaining a good quality of living.
There are times in life when bursts of focus are required, certainly so in the medical world. Tricky technical procedures, emergent scenarios and important decisions at 4am of a night shift all deserve a healthy dose of your attention. Once again, however, too much focus may be unhelpful. Task fixation may leave you perilously blinkered to other life-threatening processes occurring around you. Consumption of bandwidth by that one task, that one patient can be harmful to those who remain in the umbra of your cognitive spotlight.
My recent tango with an exam is another example of the negative consequences of a focus that is too unwavering. I’ve been all-consumed by passing said exam. Every waking moment spent either working towards it or feeling guilty for not doing so. Many sleeping moments equally preoccupied by dreams (/nightmares) revolving around jumping over this one hurdle. Everything else was thrust on the back burners. As my colleague put it: “you’re ready to sit the exam when you’re utterly miserable and hate your life“.
The outcome is as you might predict. Much like my descent into unadulterated FIRE-focus, life’s usual vibrancy took on a rather unexciting hue. Perhaps fortuitously the second national lockdown stripped some of the pleasures of life away anyway; I can’t blame my exam for sapping all the enjoyment away.
Even writing MedFI articles ceased. It wasn’t writer’s block, it was more akin to a writer’s apathy. How could I enjoy doing something not related to passing this test? It has led to the longest gap between posts in the year-long history of the blog. Not that I work to a schedule, but I enjoy the creativity and catharsis involved in the writing process and that has been lost for six weeks.
Stepping back, stepping forward
Focus can be both a force for positivity and a funnel to despair. To be without any focus, to be constantly inattentive, would lead to minimal productivity and perhaps too a lack of enjoyment. A focal point that is too small or too restricted may be equally dissatisfying. My lesson learned is to try to keep some perspective, to recognise when the blinkers are on and take them off on occasion to remember that a wider world exists. Easier said than done, I know.
As any Trekkie will surely be aware, the term ‘red alert‘ is synonymous with critical or imminent danger. Yellow (amber) alert is a slightly more mellow affair – if you’ve ever seen a traffic light then you get the drift. In what is presumably a sort of frequency illusion, I’ve been seeing alerts everywhere recently.
Pay All You Earn
I can’t say that I hadn’t fair warning. HMRC had let me know that I was undertaxed in 19/20 and would be footing the bill for it this year. What I hadn’t expected was said deficit to be taken from me in one fell swoop – a more than doubling in PAYE last month. This cut my take-home pay (and thus savings rate for the month) by nearly 40%.
The sudden drop was an unpleasant surprise, and my usual financial tranquility was certainly piqued. It wasn’t quite full red alert aboard the Starship MedFI; essential spending was wholly unaffected. Although discretionary spending could have been maintained at previous levels, I found myself engaging in a sort of amber alert. The generally well-oiled automaton of financial goings-on was subjected to a bit more QC than usual. This was mostly as a protective measure should I fall foul of more HMRC recompense requirements, or any other financial misfortune, in the near future.
The murmuring surrounding negative interest rates has upped in decibel level this week as the BoE laid down the gauntlet for UK banks: you must be prepared for negative rates. Others have written fairly succinctly on the topic already and I won’t re-hash their summaries here.
All-in the arrival of negative interest rates wouldn’t have devastating effects on the masterplan. Operating in a near-cashless way, in part thanks to my Emergency Fund 2.0, things wouldn’t look altogether that different if negative rates were implemented. Their introduction would, however, be another gentle rocking of the ship, another ripple in the pond, an added perturbation. Amber alert indeed.
Tiers beget tears?
The fabric of our everyday lives is inextricably linked to the ebb and flow of the Covid pandemic. The Government’s new trifecta of tiers has only put the Liverpudlians on Covid red alert so far, with a smattering of amber tier two zones too. One model predicts that the majority of the UK will be Covid hotspots in a fortnight’s time; most data is trending in the wrong direction. Though regionalisation, via the tier system, in theory absolves the government from having to introduce a total nationwide red-alert (lockdown), I still agree with my past self’s opinion that it is an inevitability.
In-hospital patient flow is subject to a similar arrangement. Though ‘green’ patients are in theory proven Covid-free, and red the opposite, some have slipped through the net. Unintentional exposure to Covid-positive patients, and an un-healthy dose of coryza, has kept nearly 20% of staff in my department from working this week. Presumably the frequency of coughs, colds and Covid will continue to increase in the coming months. The workforce being laid so low as the clinical pressures mount will surely be cause for red alert.
Problems in engineering
I’m sure we all wish we could jump to ward speed, whether that’s to accelerate the journey to FI or leap to a future time when Covid no longer taints our lives. The sad truth is that the warp drive is out of action and there’s no escape pods either. Much like children on a bear hunt, we’ve just got to go through it. My internal financial emergency alert system will remain at amber, at least until I know I won’t be taxed through the nose again. In terms of the other fiscal and non-fiscal shenanigans, there’s little merit in engaging in constant red alert – it will simply leave you feeling blue.
We’ve all seen seaside holidaymakers strolling along the boardwalk, proudly (naively) sporting their paper cone of chips. In swoops a seagull – chips are lost, pride is wounded. The daring seagull has demonstrated a fairly short flight distance – how close it will get to a human before retreating (NB flight distance is not the distance it has flown in order to steal its salty, vinegary snack).
The same phenomenon is observed watching pigeons in the park; those that get close enough to humans are rewarded with the crumbs fresh from your sandwich. If they get too close (short flight distance) they may get a lazy foot swung in their general direction, risking injury. If they stay too far away (long flight distance) they’ll miss out on your carbohydrate detritus. A well-judged, balanced approach is required to survive.
Financial flight distance
This risk/reward assessment by pigeons, seagulls and all the beasts of the earth is analogous to some of our financial interactions. Our financial flight distance isn’t necessarily which assets we choose to invest in – there’s a separate risk/reward decision about whether to put our money on 16 red, under the mattress or in Tesla stock.
Rather, our financial flight distance reflects how we behave once we’re already invested in something. We’ve already decided we want to earn interest on our investments (pilfer a chip, in seagull terms). The financial flight distance is the point at which we bail out and seek those returns elsewhere. You might withdraw investments from an asset because of mounting risk, worsening losses, opportunity for better returns elsewhere, or change in circumstances.
The investor who flees at the first sign of trouble (long flight distance) risks missing out. If you sold off your entire equity holdings every time they hit -1% you’d probably miss out on gains and possibly suffer prohibitive fees. Conversely, the investor who tries to get out too late (short flight distance) might not actually be able to get out at all, losing capital as that niche cryptocurrency’s value or company’s stock trends to zero.
One’s financial flight distance is borne of the many factors and biases that determine our behavioural approach to finance. Understanding your flight distance and the why behind the decisions you’re making is important for growing as an investor and minimising the risk of losing capital.
Peer-to-peer (P2P) lending has always made me slightly unnerved. For sure it’s above board; it’s not exactly betting on backstreet cock fights. Plenty of people have made good medium-term returns with P2P investments. It even has its own ISA subtype – the innovative finance ISA (IFISA). And still it’s never sat quite right with me. My inner instinct said: avoid it. Using this sort of financial gestalt isn’t always robust as a decision-making tool – how many people have lost money believing that ‘X is the next big thing’? So I decided to go against the gut feeling and try P2P out.
You can see that, following my initial investment in February 2019, things ticked along fairly nicely. I was receiving an equivalent annual interest rate of 3%. Not spectacular and certainly well below (expected) equity returns, but better than the returns on a host of non-equity investments.
Come September 2019, Ratesetter (the lending platform I’d been using) changed the rules of the game. The spidey-sense was tingling. You can see the plateau as I took money out of the loan markets. I was unsure whether the returns still merited the risk, and wanted to see the after-effects of the announcement. The boat appeared to be relatively un-rocked, so I dove back in for another french fry month in December 2019.
Reading the tea leaves
P2P lending platforms Lendy (May 2019) and FundingSecure (October 2019) had already collapsed during the year. This provoked tighter FCAregulations for P2P in December 2019. This should have reduced my concerns about P2P investing, yet come January 2020 I decided enough was enough. I felt too close to risk – it was time to flee. I pulled the plug on my P2P investments.
To say that I foresaw the great global catastrophe that was brewing would be a lie. Back then, Covid-19 was still a blip on the edges of our radar. I am, however, glad that I got out of Dodge when I did. It’s been a tumultuous year all-round and P2P has been no exception. There’s been closure to new investors, new account fees, sorely depleted provision funds, slashed investment rates and delays in withdrawal.
Perhaps my flight distance was too long; another month or two might have eked out more interest. The overall percentage of my net worth invested in P2P was never more than a couple of percent, so the total loss of capital wouldn’t have been catastrophic. Even still, I can’t help but feel it was the right decision then.
Diving back in?
I suspect that there’s more misery to come for P2P lending. The extended furlough scheme, soon to evolve into the Jobs Support Scheme, is still doing some propping-up. There’s an increasing number of localised lockdowns within the UK and it’s barely autumn – the chance of second national lockdown is non-zero. Oh and the small matter of Brexit too. I can’t see myself diving back in for another round of P2P investing, certainly not for a good while. As such it’s probably best I keep my equity flight distance fairly short for the meanwhile. Blue-chips do sound rather tasty…