This week has seen some pretty volatile movements in the stock markets. I’ve not been paying much attention to the news but I’m sure it’s a combination of US sanctions, problems in the Middle East, blood letting FAANGs and new next financial crisis beginning. It almost makes you take you eye off the Brexit shenanigans!
We may look back at 2017/18 as the high watermark of the boom years – we didn’t learn anything from the collapse in 2007-9 and all got a bit carried away. The house prices bubble in Prime Central London climaxed – at crazy levels, Bitcoin boomed and bust, interest rates started climbing after years of NIRP, oil prices rose from the doldrums and the price of “it’s different this time” tech stocks hit their zenith. It’s been a year of changes and not all of them good – but I would also add not all that disastrous (and the disasters that we’ve had are not that bad for the economy overall, it’s more of a people problem).
From a Gentleman’s Family Finances piont of view
Now, I’m looking at how best to put my family’s money to 1) keep it safe 2) let it grow 3) provide us with cashflow for the future. Ideally, I would like to have £1,000,000 in low-cost available now ETFs – paying a nice quarterly dividend making up £40,000 a year with £500k in cash for emergencies and the mortgage paid off.
I think that despite the ride being a bit like a rollercoaster, the stock market is best way of making your money work for you without you doing anything in return for it. It beats bonds, savings, cash, property and panini sticker collections hands down over the long run
Instead I’m in a funnier position of not having a million quid tucked away, and having more of my money in pensions that out of it! I also have the mortgage to pay off and the money that is left over is split between those are are/are not:
- Liquid / listed
- Interest / dividend paying
- Tax advantaged/tax-free
I don’t know when I’ll be able to FIRE – I don’t think it’s just a matter of saying:
The sums add up Dear, we can retire as of next Tuesday; unless you have better plans”hypothetically GFF to LFF
But part of the plan is to shift some of my investments towards low-cost ETFs that pay a good dividend. My ISA/ETF accounts are relatively low in value (less than 10% of net worth) so I need improve that. I’ve set up a regular investment in the ISF etf through Hargreaves Lansdown – for funds outwith of an ISA/SIPP they have no account charges making them a great choice. The trading fees are £1.50 per month for the regular trade and 0.07% OCF for the fund itself. ISF tracks the FTSE100 and has a current dividend yield of around 4.25%. The money is coming in part from my salary, in part from maturing VCTs and from P2P lending transactions. I expect can keep buying ISF and create a dividend stream of about £2,000 a year based on current cashflow projections. Not enough to FIRE on – but it provides a secure, stable and low-maintenance stream for the future.
The problem with investing is that I’m probably not very good at it. I bought £3,000’s worth this week and was going to buy on Tuesday but held-off as I wanted a better price. Good thing I did because the FTSE100 fell over 1% on Wednesday and I swooped in for a bargain!!! I thought I got a good price – the only problem was that the next day the FTSE100 fell 3% more on the back of nothing but bad news. I could have waited a day and saved myself almost a hundred pounds!
But if you look at the chart, buying in the last week has been a bad idea and over the last year, things have been really bad – in fact buying this year has been a bad idea altogether. The FTSE100 is now lower than it was in 1999 (albeit without dividends). The FTSE is down about 10% from its peak in May – other indices show similar falls.
What this does make me wonder about is the Sequence of Returns Risk which is the risk that you get with equities that poor performance of the stock market in the early years of your retirement means you run out of money. MsZiYou wrote well about this. It’s not as simple as that and there’s lots of maths you can do to analyse the impact. For me I wonder if after seeing a big stock market rally over the last few years, that FIRE is a terrible idea? If our FIRE funds have been swollen by the recent rally and the we see bid drops in the next couple of years – or more importantly, a dip in corporate dividends or dividends don’t keep up with inflation – then the best laid plans and all that…
To think about it another way, would I feel better about moving into equities after they’ve recently risen 10% or fallen 10%? Would I feel better about buying bread if the price rose or fell 10%? As an salaried employee, investor and potential early retiree my priorities should be: 1) valuable money being paid 2) invested in value assets at low prices 3) those assets retain their value, pay their dividends and grow over time.
I don’t think that I’m asking too much. So on reflection, I am not going to get too worried about small movements in stock prices. I’ll be buying again and again over the next few months – so I’ll achieve pound cost averaging. Secondly, I’ll not try to time the market too much, it’s no wonder that the majority of spread betters lose money (sometimes with terrible consequences) – and the market is fickle. My plan is to take advantage of the recent sell-off in equities and buy and hold for the long term.
Finally, after yesterday’s rout! The FTSE is up almost 2% today. No doubt it will be both up and down again in the future – like the Grand old Duke of York. The pessimism and gloom from yesterday has been replaced by boundless optimism and animal spirits! I think I’ll just enjoy a nice family weekend, safe in the knowledge that my £3,000 in ISF should generate £125 a year in dividends forever more and I don’t need to worry too much about it or do anything – passive pleasure you could call it. If now is the peak of a bubble, I’m probably still best just doing what I’m doing already. There’s not much point in worrying excessively and I’ve got more important things to focus on anyway.