Seven years on or so and, thanks solely to her, most of the garden looks great.

Except for the lawn, now an expanse of moss with the occasional outbreak of grass. Nevertheless I am diligent in mowing the moss, and keeping it back to an acceptable length.

I have some grass seed and moss killer to throw about next week, which I’ve done for the last seven springs. This does nothing other than keep me occupied for an hour or two, zoned in on weather forecasts ensuring I’m seeding on warm, damp soil but not too damp or warm and doing so either side of rainfall that must on pain of death arrive but not within two days of seed chucking.

I often feel I’m distributing moss seed and grass killer.

Undeterred, TLP has now commissioned me to “strim the edges” or something, and so I’ve bought a strimmer. I went for the one with seemingly the least moving parts. On unpacking it, there are still way too many of these for my liking; the instruction manual comes with a smaller instruction manual to help you understand the former.

So at the minute it sits in the kitchen, balefully lurking, mocking, as I studiously avoid having anything to do with it for as long as possible.

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Hence me at the keyboard. For, Dear Reader, I have discovered something this morning that rather piqued the old grey stuff. It turns out that 2026 has, as far as the values of The Great Companies of The USA (and hence the world, in practice) are concerned, been a big bag of nothing.

Yes, lots of stuff has been going on. From a potpourri of misery we can choose any one or all of the following menu items:

• impending war, possibly with nuclear weapons, definitely with armies of drones

• global food shortages thanks to nitrogen being on the scarce side

• oil and gas prices rocketing up with potential fuel shortages in the UK, quite the trick given that we are an island surrounded by oil and gas

• more widespread pernicious inflation coming back into Western economies.

In the same way that most of us couldn’t find Ukraine on a map until a few years ago, now the world opines about some distant piece of the planet called the Straits of Hormuz. [Quick aside - watch this and weep: that lady will one day be running an HR department. Chew on that.]

Then we hear about the Magnificent Seven, those fabled tech stocks that have so driven returns over recent years, losing their lustre. About how overvalued the US market in general is. How Trump’s Tweeting and “think-it-say-it” approach to global diplomacy is not quite cricket.

Disastrous, right?

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Not so quick. Turns out the US stock market is down since the start of the year. The doomsters were right! Well, yes and no. The S&P500 is - wait for it - 0.4% lower than it was at the beginning of January. For context, most markets move up or down by more than 0.4% almost every trading day.

To say the US market is down is, technically, correct. To actually believe it is down in any way that we emotionally understand the word is a stretch. If we were to add back in dividends paid out by the Great Companies over the first quarter of 2026 then we’d be in positive territory.

There was never a Goldilocks moment, when the porridge was just right, when things just went up and up and bad news was hard to find. We are pining for a time that never existed - and never will. A mix of tumult and anxiety is the human condition. At least, it’s my condition. My resting face is basically anxious tumult.

What happens when we have a proper, unpleasant, gut-wrenching temporary decline in the values of The Great Companies of The World? I’m talking 20% or 30% or more. Not your 0.4% pipsqueak. How will the media react then? Way more importantly, how will you? Such movements typically occur every five to six years or so. In a typical three-decade retirement you can (and should) expect to see the value of your precious investment pots fall by a third or more five or six times along the journey.

Think about that. Internalise it. Are you up to it?

Are the times we live in unsettling? Yes, more than normal, without doubt. Has your financial plan changed as a result? No (unless you’re the captain of an oil tanker and get paid on delivery). If your financial plan hasn’t changed then the investments fuelling your financial plan don’t change. And if they don’t need to change, why do you or I care about what’s happening (or not) in the scary stock market?

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For those still with me, I gave up on the strimmer. I had a go at it, I really did. I couldn’t get beyond this, which was the first part of the whole process, racingly entitled “Mounting The Deflector”.

When TLP returned from a light-to-medium session of retail therapy, on learning of my progress or lack thereof, a certain chill of the glacial variety permeated throughout Lincoln Lodge. With a look that could wither a man at 30 paces she boldly took charge of the operation, barking instructions at me, muttering something about “a village somewhere missing its idiot.”

And, lo, I present the strimmer. Cordless, thankfully. The last corded thing I wielded in the garden was a hedge trimmer thing, rendered impotent the moment I accidentally trimmed the cord in two

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In communicating with clients, financial advisers have to caveat almost every other sentence with "capital at risk", "past performance is no guarantee of future returns” etc. I can’t write a client birthday card without a footnote saying something about “future birthdays are not assured.”

If only our chums at The Treasury/HMRC had such obligations.

This week I had a phone call/email conversation with a client who is being headhunted to run a small organisation. It’s a lifestyle career change and she’s taken a considerable reduction in remuneration. Her headhunter thinks her package will be a salary of around £100,000 to £110,000. The lady is bright, driven, on her game - and like most of Civvy Street - completely baffled by our insane tax system.

Maybe thanks in part to years of listening to my witterings she knew that there was something fishy around the £100,000 salary mark. In her previous role, she didn’t really have to worry about it; her package was considerably in excess of this and there wasn’t much she could do. In her email to me she wrote (my emphasis):

So, I’ve done some research and understand that I might be better off at £100k because of the personal allowance 60% effective tax band.

I then saw something about pensions and salary sacrifice but, I’ll be honest, jet lag and no coffee made my head start hurting.

What she was alluding to was the litany of joy that happens when you hit £100,000 in earned income:

• You continue to pay Income Tax at 40%, rising to 45% on every penny over £125,140

• You continue to pay National Insurance (NI) at 2%

• The killer: for every £2 over £100,000, you lose £1 of your Personal Allowance (the PA is that £12,570 sliver of income which the State so kindly decides not to pillage). When your earnings exceed £125,140 your PA is gone.

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I could add that earning one penny over the magical £100,000 also completely removes you from getting any tax-free childcare. But I don’t want to rub it in and, anyway, things are bad enough already.

So I ran the figures for my client. Given the confluence of griefs above, if she earned £100,000, her net would be £68,557. If she earned £110,000 her net would be £72,357.

And it’s always net income that we need to focus on. To paraphrase Confucius: “People don’t live off gross, they live off net, and don’t ever forget it, Sonny Jim.”

There you have it: £10,000 effortlessly turned into £3,800. The Income Tax Trap (ITT). A miracle!

Salary Sacrifice: A Short Lesson

I’m all for a spot of alliteration now and then but “salary sacrifice” remains a grisly use of the English language. One could shorten it to “SS” but that has gruesome connotations. In essence, salary sacrifice typically means giving up some dosh for a pension contribution from the boss.

In our example, my client is very likely to take a package of £100,000 salary, with any excess left on the table being routed back into a personal pension as an employer contribution. This gives her £10,000 in her pension pot (where it grows free of tax, of course, although such growth is not guaranteed - bloody hell, there I go again) or £3,800 in her bank account.

£10,000 v £3,800: what would you do? Yes, the pension can’t be accessed until she’s 57, and some of it will be taxable at that time, and future governments might do this and might do that. And obviously each individual’s complete financial picture needs to be taken into account (BECAUSE NONE OF THE ABOVE IS ADVICE, CAPISCE?)

But, really, £10,000 or £3,800? It’s a no-brainer.

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It Gets Better

My client’s prospective employer pays 15% Employer NI on employee salaries over £5,000 a year. This “unseen” tax was made considerably worse by Rachel From Accounts in her vomit of a Budget last year. If my client is offered a package of £110,000 salary, her employer has budgeted for paying Employer NI at 15% on the majority of it.

So, should she go the “salary sacrifice” route, the employer is saving (£10,000 x 15%) £1,500 that they have already accounted for in their offer sheet. So the employer could and should add this saving to the pension contribution.

Now the choice is £11,500 in her pension pot, or £3,800 in her bank account. And let’s face it, £3,800 does not a long way go these days: The Lovely Penelope (TLP) has a fondness for Jo Malone, a brand currently selling candles at £59 a pop. I have a fondness for beer, currently going for around £8 a pint in town. Go for one extended bender involving candles and beer (I’m adding this to The Bucket List as I type) and the £3,800 is pretty much gone on a long weekend of molten wax and hops.

[Your author departs for a cold shower]

OK, I’m back.

It’s Not Just Her

I posted my client’s story on X (the artist formerly known as Twitter). It hit a nerve and currently has nearly 1,000 “Likes”, over 150 Reposts and nearly 40,000 views. This, for me, is uncharted territory.

The striking thing is the tone of the comments. Normally social media brings out the antagonism in people (Lincoln goes to look in the mirror). Here, though, there is uniformity in criticising our tax code and the ITT in particular.

Multiple stories of people turning down work or working fewer hours to not earn more than £100,000. People asking to be posted to overseas offices where they can earn the same but retain a lot, lot more (net over gross, remember?)

The UK has a productivity crisis. GDP per capita (how much a country produces each year in goods and services divided by the number of producers) is at best stagnant and, as of last year, was below pre-Wuhan Lab Leak levels. This is distinctly sub-optimal. Any tax system that encourages the driven aspirational class (and that £100,000 salary is as good a marker as any) to work less or not seek that formerly attractive promotion is a disaster on stilts at many levels.

That many of these bright people are only at best dimly aware of the ITT is no reflection on them. The UK’s tax code is enormous. I could blind you with stats here but, truly, a picture says a million words (and the UK tax code runs to 10 pictures)

This is good news for accountants and bad news for human beings. In fairness, my accountant is a decent chap, although I’ve never seen him add up numbers without moving his lips, which is a concern.

As ever, this polemic is party neutral. Yes, the late Alistair Darling introduced the ITT in his 2009 Budget. But the Tories had 14 years to get rid of it and did nothing, not even raising the threshold (if the £100,000 had been increased in line with CPI over the last 16 years it would be just shy of £163,000 today).

The system is broken. Whichever party intimates they will reform our burdensome tax code has a decent chance of being lent my vote at the next General Election.

Until the next time.

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Friend,

It’s too soon to call this the end of times. But can someone out there give me some good news? I am generally a revolver half-loaded kind of chap but it does feel as if we are awash under wave after wave of bad news, of state blunder to state blunder.

When will it all end? Will it all end?

The answer, of course, is “yes”.

But when, and how? Those are the bigger questions. I know not the answers to these, and neither do you, if you’re honest (which you are; my readers are the very cream of humanity, obvs).

And so onward we lumber, under rosette red and blue, from crisis to crisis, with no end in view (Betjeman is safe). A joke on the international stage, our sceptered isle finds itself ridiculed from within and outwith. Our institutions crumbling, our trusted society long gone.

Flight from urban areas, for the middle classes at least, is a real thing. And why not? Check out Birmingham as an exemplar of how not to run a country’s second city.

As a nation, we have adopted a saturnine stance. Gallows humour abounds: “Went into London and didn’t have my mobile nicked!”, “Caught a train the other day and it nearly arrived on time!”, “Phoned HMRC and it only took me three hours to speak to someone who could speak English!” and so on.

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Gratitude Is The Attitude

And yet, despite the relentless bad news, we have so much to be grateful for. The inflationary spike of the last few years seems to have been tamed (although inflation at any level over a typical three-decade retirement is a serious threat to your wealth, as I may have mentioned once or twice).

Asset prices continue their northward ascent. The stock market, that composite of the values of The Great Companies of The World (GCOTW), continues to bat away things like Trump’s tariffs and various other “end of times” news items. Of course, by stock market we really mean the S&P500, and by S&P500 we really mean those pernicious tech stocks that seem only one way to travel know. All the while, our beloved FTSE is becoming a non-entity. Hey ho.

Property prices (look away if you are not a property owner, which seems to be pretty much everyone under the age of 30) remain solid enough, although not much seems to be actually changing hands. The market appears “sticky”. It is amazing what one asinine tax can do and Stamp Duty gets the gold medal in that category.

Non-income producing investments speculations such as crypto (“Wizards on clouds”) and gold continue to lure people in with strong returns based entirely upon the precept of finding a buyer willing to pay more than they did. To my pea-sized brain that is not the strongest sales pitch but, boy, it seems to be working.

And savers (those folk with grey hair) are getting some kind of return on cash, after over a decade of being hurled against the blades of quantitative easing (QE), which is latin for “bailing out the banks during the Credit Crunch and encouraging them to do exactly the same bad things down the line, safe in the knowledge that the taxpayer will foot the bill.”

At least now you can get 3-4% interest on your cash before tax (everything is taxed these days; I’m waiting for a future Chancellor to announce a tax on tax). So the folding stuff is still getting eaten alive by inflation but not nibbled at such a rate as in those crazy (stupid) years when the base rate vacillated between 0.25% and 0.50% and having cash at the bank was akin to taking a stash of tenners out of the safe every day and shredding them.

And the weather, no doubt entirely due to Global Warming Climate Change and nothing to do with us being in “Summer”, has been superb. Everything is a bit better when the sun shines. Not my deepest insight but true, regardless.

All of these good things give us the required energy to KBO.

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KBO

So much is ascribed to Winston Churchill that it feels as if he contributed more to the English canon than Shakespeare. But “keep buggering on” is definitely one of his greatest hits, so much so that one can even purchase t-shirts with the phrase emblazoned.

It was his way of saying persevere through difficulties, to not give up, to keep the end in mind and always work towards it.

We need to KBO. We need to cleave to those things in life that matter - friends, family, health, laughter, copious amounts of alcohol - and not get caught up in the tsunami of seemingly endless bad news, most of which is outside of our control anyway.

KBO.

Still working? Keep striving for that next opportunity. Keep salting away that nauseatingly large amount of money each month into your pension/ISA/whatever, money that you could spend now on trinkets and baubles that would give you a nanosecond of fleeting joy, but instead you have chosen the incredibly noble path of delayed gratification.

For when you come to draw on those pots in the next stage of your life, you will thank your earlier self more than you can imagine. Having - and maintaining - real financial independence will confer on you a dignity denied to the vast majority.

Real financial independence is more than having “enough”. It’s also about being able to stand on your own two feet without needing or wanting any State support, without needing to interact with those bodies that seem, presently, to have nothing but bad intentions towards those who strive, who get up and go to work each day, who raise their children to be the best they can be, and who abide by our laws and customs.

KBO. The future is in your control. This is a great life and, for all our worries and flaws, we live in the best of times. Ian Dury’s 1979 looked like the end of times. It was just the beginning. It’s hard not to feel another new beginning is around the corner.

Keep
Buggering
On

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It’s not every day the opportunity presents itself for me to shoehorn in a reference to that 1968 speech by Enoch Powell. He passed away before the advent of the smartphone and its concomitant traits; had Mr Powell been alive today, one can only imagine his scorn for the social media world we live in. Or rather, that we pretend to live in.

“Pray tell”, I hear you ask. “By what tortuous route will you entertain me in the next five minutes involving social media, Enoch Powell and personal finance?”

Patience, friend, patience.

The Lovely Penelope (TLP) and I have just come back from a week’s jaunt to Venice and then Rome. TLP’s a Head Teacher; it’s May half-term; we travel: it’s kind of a legal obligation.

For those that haven’t been to Venice my advice is to go, and go yesterday. An amazing place. Small, and, thanks to endless little bridges, entirely walkable despite the canals. Splash out on a water taxi (speedboat) from the airport to the island and arrive in James Bond style. Do this and you can talk your other half out of suffering the gondola experience, which is expensive and, judging by the faces of those being gondaliered, miserable.

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Combustion Engines

Being the brains of the operation, it took TLP to make me notice the quiet of Venice, tourists like us notwithstanding. We are so used to the racket of combustion engines that, when they are entirely removed from the scene, as they are in the 118 islands of Venice, it’s a wonderful shock. No cars. No lorries. No Deliveroo/Just Eat motorcycle maniacs with their perpetual “Learner” badges (we know they are not “learning” and never will and they know that we know. It’s all a charade and symptomatic of the wider malaise).

There aren’t even bikes. It’s pedestrian heaven. Bars and restaurants are evidently told to keep the music down. The quiet is everywhere.

Very much unlike Rome.

We travelled to Italy’s capital via train. In the UK, travelling the necessary 528 kilometres in such a fashion requires fortitude, optimism that it will all somehow pan out, and an ability to dissociate yourself from such niceties as fretting about arriving on time.

In Italy it was a somewhat different experience.

For €62 each, TLP and I sat in our own roomy four seat business-class carriage (the other two seats weren’t occupied) and spent the three hours plus journey mainly bopping along at well over 200 kph.

The train left on time. It arrived on time. It was spotless. TLP was gushing about the toilets and with good reason: a few days earlier, she and I had spent half a day at the A&E of the Western Eye Hospital (she’d managed to get a shard of nail varnish into her cornea. Don’t ask). Unhygienic and rammed, the kindest thing to say about the place is that it is a run down, miserable building with all the warmth of a morgue.

From there we got the Metropolitan line back to WD17. In Baker Street station, an art-deco delight built in a time when we still built things that mattered, all the men’s urinals bar one were overflowing and decorating the floor.

Compare and contrast with the Italian experience.

Lessons thus so far?

1. Go to Venice.

2. If you must go to Rome, go by train. It’s a blast.

3. Try not to get nail varnish in your eye.

4. Wear shoes you can easily wipe down.

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Like The Roman

In contrast to Venice, Rome was a bit of a disappointment. First impressions count and as you emerge from the station into the expected chaos, the two words you don’t want to hear are “taxi strike”. And Uber was not working (from experience, it never works near Continental train stations).

And so we schlepped the 35 minutes to the hotel. It was warm. Very warm. The streets are mainly cobbled and mainly without pavements. The drivers drive fast and close. Rome has hills. Lugging luggage in such conditions…

Still, it gave me time to appreciate the graffiti, which is pretty much everywhere. I wonder if continental cities get their adored slabs of pre-fab already daubed with the stuff directly from the factory: it would save a lot of time and effort.

Suffice to say, little of the always-scant Lincoln sang froid was evident as we arrived at our Citizen-M hotel. An excellent place, as they always are, even if aspects of it are over-engineered. The automatic check in process requires a human being to guide you through the screens, which is self-defeating. Also, why do they need to know which country I was born in and where I reside now? They’ve got my passport. Isn’t that enough? I was about to identify as an Ethiopian living in The Hague before an embarrassed TLP led me back to the straight and narrow.

We did the sights. The Trevi fountain was rammed and is basically a large fountain. The Spanish Steps are a series of steps. Before we even got to the Colosseum, TLP and I weren’t talking: being taller than her, my natural walking speed is quicker. She asked me for once to walk with her, rather than in advance. So I did, for a few minutes. I was then castigated for deliberately walking too slowly and told to go off on my own.

As if by magic, an argument had been conjured out of thin air. It’s a gift.

We carried the mood into the Colosseum. Thinking that getting there at five minutes past nine in the morning is early enough to avoid the crowds? Think again. It was teeming with annoying tourists just like us.

If you like “Gladiator” and old ruins it’s a must-see. I’ve never watched it and have no interest in archeology so I wasn’t blown away. I know, grade-A philistine.

In The Moment

Once we’d navigated the inevitable queue and got inside it was quite the thing to observe the other human beings there. At a guess, I’d say 90% of them had their phones out, taking videos, photos and selfies. Lots and lots of selfies. If you squinted, it looked like people were deliberately taking selfies composed of themselves and people in the background doing likewise. An endless loop of selfie hell.

Resisting the urge to nick a selfie stick to batter my way through the crowds with, TLP and I tried to be present, to enjoy the moment. It was hard. To get to any viewing point you had to wait for the three rows of people in front of you to compose their photo, take it, look at it on their phones, and eventually bugger off.

Is this the way to experience a bucket list destination such as the Colosseum? In fact, is it being experienced at all? And what does all this have to do with personal finance anyway? Not much and yet everything.

As a financial planner, I encourage my clients to accrue sufficient money and wealth so they can live lives in accordance with their values and dreams, and to have “enough” in a typical three decade retirement to be able to experience things, to buy memories, without fear of later on running out of the stuff.

To be able to enjoy the here and now whilst simultaneously ferreting “enough” away for later on.

As ever, money is just an enabler.

The humanity I saw on display at the Colosseum was some kind of manic display, a paean to the Gods of Instagram and Snapchat and Tik-Bloody-Tok. If you’re accruing and then spending money just to bucket list your life on social media then you’re unhappy and in search of something. All the money in the world can’t help you.

What gives me the clinical right to make such a diagnosis? Nothing except my experience of human beings. As a financial planner, working in a world where money and emotions intersect in a swirling and sometimes savage vortex, being able to see the world through the other person's eyes is about as key a base requirement as their can be.

The world of the crowds in Rome was next level narcissism.

I appreciate it’s not an original thought to be wary of the impact of the mobile phone on our lives. And, in the round, they are great devices. To say I couldn’t live without mine is probably a stretch but it’s almost true.

But for the love of God, sometimes, put the phone down. Be present.

I took three photos in Rome. None involved the Colosseum. One is below. Because she’s beautiful and so is the Castel Sant’Angelo.

And the Tiber, thankfully, was not foaming with anything. Until the next time, friend!

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The financial arc of our lives is broadly split into two phases:

1. the Saving Stage (also called “accumulation” by technical geeks with no trace of humanity);

2. the Spending Stage (also called “decumulation” by the same).

In essence, the Saving Stage is that three-to-four decade span when you are working and earning an income. In this stage, you will (God help you) be following Mr Buffett’s maxim and furiously salting away as much as you can afford into your company pension scheme(s), Investment ISAs and so forth.

“Don’t save what is left after spending; spend what is left after saving.”

Warren Buffett

In the Saving Stage one walks that precarious tightrope of enjoying the here and now whilst also looking to build up meaningful, substantial pots of money for later on. These pots will become a source of replacement income for that excruciatingly frightening time when you walk away from work and the regular monthly pay cheque.

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And it is frightening, and no one’s immune to this fear. And it’s OK to feel it. The fear comes from the loss of certainty. One minute you know that each month, £xxxx will hit you bank account and will cover the cost of your Lifestyle. The next, it’s gone: when you transition from the Saving Stage to the Spending Stage you’re on your own, State pension notwithstanding.

You’re Going To Hang Around

If people understood for just how long they would be financially on their own in the Spending Stage, the fear element would shoot off the charts. There is a decent body of research that shows we sell ourselves short when it comes to predicting how long we think we will live1:

According to new research from Canada Life, people aged 50 and over on average think they will live until around age 80, whether male or female. The good news is, according to the ONS life expectancy calculator, a male aged 50, will, on average live to age 84, while a women aged 50 will live on average to age 87.

This gap in expectation and reality creates additional pressures on retirement planning…..

Now, ostensibly, this is good news. The crazy thing called life is, on balance, enjoyable, and few of us want to think about it ending, although when I’m forced to listen to Piers Morgan I get ideas. So if life and all its accoutrements goes on for longer than we planned, all the better, no?

No, not in the financial sense. At the risk of bleating out the bleeding obvious, if we’re living longer than we planned, life is going to cost more and we need to be salting more away in our pots in the Saving Stage, else the Spending Stage will end in a state of disrepair. A dignified, independent retirement no more.

12,775 Days, Give or Take

There’s an awful lot going on in that image above. I’m no statistician or maths genius (it took me three goes to get my Maths O-Level between 1985-86. Reassuring, eh?) but I glean from the above that a newly retired non-smoking couple, aged 60 and 58, in good health, has a 50% chance that one of them will live for 35 years in the Spending Stage.

This is based on American data - the Yanks are always streets ahead of us when it comes to stuff like this - but it is probably a fair estimation of longevity traits in our country too.

And before readers take umbrage and resort to the trope of Americans being grossly overweight and so surely we will live longer in the UK: have you walked down a high street here recently? We ain’t getting smaller: if I come back in another life I will go long Dunkin’ Donuts, fried chicken outlets and tattoo parlors. But I digress.

So What?

If our Spending Stage is going on for longer than we think or plan for, then there’s a good chance our pots will run out of life before we do. And that’s distinctly sub-optimal. The danger of this happening is exacerbated by a combination of two factors:

1. our Lifestyle costs go on for longer than thought and so are pots are depleted more;

2. inflation has extra years to ratchet up the cost of our Lifestyle.

By way of example Melania (58) and Donald (60), our retired couple above, are just setting out on the Spending Stage of their life. They’ve worked out their Lifestyle comes in at around £60,000 a year net.

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Not that they’ve given it much thought but neither of them think or believe that one of them could be around in 35 years' time. Nor do either of them spend much time pondering historical rates of UK inflation. If they had, they would know that, since WW2, UK Retail Prices Index (RPI) inflation has clipped along at 5.3%2 a year.

And over the last 35 years (those long 12,775 days) UK inflation has been 3.4% a year. If that were to repeat itself, a Lifestyle cost of £60,000 today would be £193,000 in three and a half decades.

Melania or Donald would be having to spend over three times their first-year Spending Stage amount just to stand still 35 years later.

People entering the Spending Stage are worried about many things. A solid financial plan, communicated to you via an empathetic financial planner, will help assuage those fears as much as can be. But your planner has a duty to not just reassure you that the monthly pay cheque can be replaced by taking an “income” from your various pots. She should also be opening your eyes to just how long you are likely to live in the Spending Stage, and by just how much your Lifestyle cost will balloon over that period.

Longevity and inflation: a heady brew as you enter a 12,775 day Spending Stage. Make sure you’ve prepped for the long haul. You’ve earned it - literally.

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Even the most dedicated ostrich would have struggled to block out the tsunami of things happening under the new US administration. Amongst these is a series of seemingly random trade tariffs.

These, apparently, have spooked the US stock market, by which I mean the S&P500, the 500 largest Great Companies of the USA. Like all stock markets, the US one is made up of thousands of individuals making buying and selling decisions every second of every trading day, powered by computers with algorithms and data processing power beyond comprehension (well, beyond mine). As such we rarely know what is “spooking” the market en masse but we humans love labels and causes for things, and so “trade tariffs” is the malaise du jour.

On 19th February the S&P closed at 6,144. On the 13th March, nearly a month later, it had caroomed/crashed/imploded/[insert-overwrought-adjective-of-choice] to 5,522. A temporary decline from peak-to-trough of just a smidge over 10%.

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Here, with insight from Mr Musk’s1 AI wizard Grok, are some of the resultant headlines in the Dying Legacy Media (DLM):

Experienced, respected commentators like John Stepek, a senior reporter at Bloomberg News, felt compelled to put out an “emergency podcast for those of you hyperventilating” (yes, really). With him on this was the also generally sound Merryn Somerset Webb.

This is such nonsense as to be almost funny. But it’s not: people like Mr Stepek and Ms Somerset Webb are respected influencers, and, for good or bad, contribute to the zeitgeist where money, people, and emotions collide.

A 10% Decline Is Chicken Feed

First things first: if a 10% temporary decline leads you to hyperventilate, you flat out cannot own a portfolio of The Great Companies of The World (GCOTW). Instead go sit in cash or “low-risk” alternatives and, over the decades, stare dribbling and open-mouthed but happy at the nominal value of your investments never falling, all as the real value (purchasing power) - the only thing that matters a damn - gets eaten alive by inflation.

Good luck with that, and enjoy your spot under the railway bridge later on in life.

Why is a 10% decline nothing but poultry food? According to the wonderful J.P. Morgan “Guide to the Markets”, since 1980 the S&P500 has experienced intra-year (calendar year) average peak-to-trough declines of just over 14%. Let me say that again: on average, over 45 years, the S&P500 has had calendar year declines at some point of over 14%.

This most recent wobble is significantly less than an average yearly peak-to-trough extending almost 50 years.

Despite this (because of this?), the S&P500 has delivered positive returns in 34 of those 45 years. Give yourself a moment to process these apparently two contradictory statistics.

As you do so, are you starting to see the link between market volatility and the long-term outperformance of great American companies? That, without the dips, you can’t have the soars and that, in the scheme of things, a temporary decline of 10% is absolutely nothing of significance.

A Bit of History

We are the product of our experiences. As a side note, people who say “lived experience” should be shot: what on earth is “unlived” experience? I digress.

I became an IFA in May 2001. Thanks to the unwinding of the tech stock boom of the late 1990s, world stock markets were already in turmoil before some fierce advocates of The Religion of Peace decided to fly commercial airliners full of human beings and aviation fuel into buildings.

That and the resultant War on Terror led to The Great Companies of The World (GCOTW) experiencing a 51% decline in value over nearly three, long, miserable years.

Try and imagine this as a three-part play. Somehow, you have £1,000,000 to invest in April 2000:

1. you invest your precious £1,000,000 pension pot/inheritance/business sale proceeds;

2. you hibernate for 31 months or so, emerging in early 2003 to get a valuation in the post (the Internet was not quite the thing it is today, more of which later);

3. having noted your pot is now sitting at £490,000 you promptly win Olympic Gold in “Hyperventilation For Beginners”.

These are real numbers and were experienced by real people. How would you react?

The only thing new in the world is the history you do not know.”

Harry S. Truman

Five years or so later, in October 2008, I set up my own financial advice business, right in the middle of what became known as The Great Financial Crisis (remember Northern Rock, Bradford & Bingley et al?) During this time the GCOTW managed a 59% fall in share prices.

59%! Permission to grasp at those paper bags granted without prejudice!

These back-to-back horrendous bear markets led to the so-called 2000-2010 “Lost Decade” for equity investors. We then had a very pleasant few years until the catastrophic reaction to The Wuhan Lab Leak in early 2020. Once again the prices of the GCOTW caroomed south, falling by 34% in just one month.

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Three gut churning declines of 51%, 59% and 34% in twenty years. But please, do push out emergency podcasts when we just creep into a double-digit temporary decline of 10% or so.

What’s Changed Between 2000 And Now?

The reaction to recent market volatility strikes me as remarkable. And worrying. If otherwise sane, decent people are hyperventilating at 10%, what will they do at 34%? At 51%? At, God forbid, 59%?

Lincoln’s considered conclusion? Scoring very low in originality: social media (an umbrella term). And as social media pretty much gets the blame for everything these days, I’m quite happy to join the pile on.

In 2000, widespread broadband internet access was not a thing. You had to dial up via a modem (look it up, youngsters) and wait precious moments before logging in to your investment portfolio. It was a faff and you didn’t do it too often.

20-odd years ago, we didn’t have smartphones continually buzzing and vibrating with the latest Catastrophe of Catastrophes. We didn’t have our emotions constantly toyed with for clicks.

20 years ago we couldn’t, with just a swipe here and a Face ID there, log-in to our investment trading apps and make heat of the moment investment decisions that would have life changing consequences.

Now we can. And now we seem to panic at temporary declines well within the long-term yearly average.

What will happen when we have a serious decline? What will social media do then? How will you react?

Why Put Yourself Through This Misery?

Three significant declines of 51%, 59% and 34% in two decades. For the love of God, why would anyone do this?

Here’s why.

Despite (no, because of) these awful-but-temporary-declines the Great Companies of The World delivered an annual compounded return of 7.4% between January 2000 and the end of last year2. You get rewarded for suffering the volatility with life changing, permanent long-term outperformance.

Over that same period the real risk to your money, the silent wealth killer - UK inflation (RPI) - came in at 3.5% per annum. Capturing some or all of that margin of nearly 4% a year over 24 years is the difference between a dignified, independent retirement, where the money outlives you, and one where you outlive the money and have to go on bended knee to the children for financial assistance (the emotional equivalent of root canal surgery without anesthesia, of being trapped in a lift with Piers Morgan).

You can’t have the upside without the downside. One is permanent, the other is temporary. If you can master your emotions (“stop hyperventilating at the back”) and embrace the temporary but deeply unpleasant volatility then the permanent advance is yours.

If you can’t, stock up on those paper bags.

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Note: This squib is an update on this from the summer of 2022. Since then, interest rates have risen further, and the Buy-to-Let landscape is bleaker still.

Does any nation on earth have more love for property than ours? Aside from the weather and grumbling about potholes, nothing unites us more than a good natter about how much the neighbour’s house went for last week: “It’s unbelievable really. And it only has one en suite and we’ve got two, so ours has to be worth a lot more. Although theirs is a south-facing garden…”

Disclaimer: such conversations bore me rigid. I have no affinity for property: a home is somewhere to live. If it appreciates over time, great. Turns out that property price gains are largely a function of time and are often not as impressive as first thought.

So, yes, my biases will be shining through in this piece. Does it make what I say any less true? No.

Without a doubt, property as a standalone investment (e.g. rental “Buy To Let”) had attractions. I have several clients who have built up buy-to-let property portfolios. The income (rent) from these is helping them fund some or all of their retirement income needs, together with State pensions and other bits and bobs. One client couple has even incorporated their properties into a limited company, and their lives are happily built around growing and running this burgeoning empire.

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Good for them, say I: these people have (in the main) eschewed traditional retirement income sources (personal pensions, ISAs etc) for the lure of bricks and mortar. That’s not a route I would go down BUT, as long as you know what you are doing and what you are getting into, it’s way better than doing nothing in terms of retirement income planning.

Or at least, it was.

For the last three decades or so, buy-to-let (BTL) investing provided strong returns via a combination of rising property prices and generally consistent rental income (the occasional dodgy tenants notwithstanding) sufficient to more than cover any associated mortgage interest payments, even after tax, management fees, letting agent fees etc.

But things have changed. In 2022 the FT (paywall) suggested the good times could be coming to an end, as the-then UK government belatedly tried to deal with the inflation problem largely caused by the same government printing money during The Great Bedwetting of 2020-211.

Governments have one crude method to try and reduce the rate of inflation - by raising interest rates, making money more expensive and effectively strangling the money supply. The Bank of England did this viciously: on 9th December 2001 the base rate was 0.10%. Just 18 months or so later it was 5.25%.

This saw a massive spike in mortgage interest rates. In my experience, most BTL investors have borrowed to purchase. When those borrowing costs explode, the outcome can be distinctly sub-optimal, as we finance boffins say.

Triple Whammy

Taxation hikes in 2017 had already made BTL investing more problematic, reducing the net-of-tax return for property investors. And, as ever, it’s net we’re concerned about. No one lives off gross income. Couple these tax rises with a base rate going north quicker than one of Mr Musk’s rockets, and you have the perfect storm.

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This double whammy of higher property taxes and an exploding base rate resulted in a third leg on the BTL stool of doom. Disenchanted BTL investors, looking to sell their rental properties en masse, are helping to drive down the prices of said properties, and reducing any resultant sale profit (itself then subject to Capital Gains Tax at 24%).

In short, the BTL market is being squeezed by

1. much higher mortgage interest payments

2. a more malign tax situation

3. a flux of BTL properties coming to market and subduing sale prices.

There’s more: impending legislation designed to change the landlord/tenant dynamic more in favour of the latter, as well as armies of Clipboard Stasi-types demanding endless retrospective building environmental certifications, problems with cladding etc, only makes the situation worse.

Don’t Take My Word For it

This excellent article outlines why a long-term BTL investor decided to sell his lovely central London flat. The author is part of the burgeoning Financial Independence Retire Early (FIRE) movement. These are smart, switched-on cookies, who do the maths on everything. If you’re interested in learning more about FIRE, do have a listen to this rather wonderful podcast. If you can’t bear the preamble, listen from about 44 minutes in.

Or read this article, which came out after I’d written this piece and which I’m inserting after the event, as it suits my argument (immature, me?) See extract below:

And of course my clients are another source of informed opinion on this market. A tiny handful have BTL portfolios. Some are happy. Others, however, definitely have regrets about choosing this way to accrete wealth, to save for their future selves.

They find themselves saddled with properties generating rent which, net-of-tax and management fees, barely covers the interest payment on the mortgage. Properties that have shown little-to-no capital appreciation in recent times, which are not selling at prices already reduced to where the vendors thought they were two or three years ago.

Our obsession with property is unhealthy, and our planning laws ridiculous. Without the Bank of Mum and Dad, our children struggle to own property, which is why so many are disillusioned with capitalism: property rights mean nothing if you can’t own the bloody property.

If the demise of Buy-to-Let and the transition to Bricks and Torture gives us a Great Reset in this sphere, all the better. Stop with the property passion. Instead, become obsessed with inflation, the price of a first-class stamp etc. and in so doing become a more balanced, rational, nuanced person. Not only will you be more like me, you will be invited to better parties.

Or not.

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Friend,

Straight to it: a typical retired couple may well see one partner live for three decades or more. Based on typical UK inflation, over such a long period, the annual cost of Lifestyle could easily triple1: an example Lifestyle cost of £60,000 per annum at retirement could, 30 years later, escalate to £180,000 or more a year, just to keep standing still, to keep buying the exact same “stuff”.

If you really must, some prosaic evidence: 30 years ago a First Class stamp cost 25p. Now? £1.65. See the detailed graph below:

The big risk to a dignified, independent retirement Lifestyle is the destruction of purchasing power via inflation. Like carbon monoxide, you can't hear it, smell it, see it, taste it. Yet inflation will silently, stealthily kill your wealth. Year-on-year your cash will buy you less and less, its purchasing power hollowed out from the inside like a house infested with particularly hungry termites.

The Cure

If the malady is inflation, what’s the solution? Without giving bespoke, individual advice, might I suggest The Cure is a combination of optimism, fortitude and possession of a Financial Plan fueled by ownership of The Great Companies of The World (GCOTW): equities. Stuff your various tax-wrappers (ISAs, personal pension plans etc) chock full of these beauties, sit back, cross your fingers, and enjoy the ride.

Why so? Here are some nuggets to lessen the gloom (past performance is no guarantee of future returns etc):

• Three decades ago, at the start of 1995, the S&P 500 (The Great Companies of The USA) was valued at 466.

• 30 years on, at the end of last year, The Great Companies of The USA were valued at 6,011.

• In three decades, these Great Companies have grown in value by a factor of 13.

• In addition, the dividends paid by these Great Companies have risen six-fold in those 30 years2.

These numbers don’t just keep pace with inflation; they knock it into a cocked hat. But these superb returns come at a price: to capture them, you have to be prepared to ride an emotional rollercoaster that can, for some, prove too much.

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The declines are temporary, the advance is permanent

To reap the superior returns offered by The Great Companies you have to stand pat when everything appears to be going a bit “Pete Tong”. The last three decades have seen seven "get me out of here I can't stand it anymore" global bear markets and numerous smaller temporary declines3.

Once every four years or so on average, your investments would have temporarily declined by 20% or more - sometimes a lot more - before resuming their permanent advance.

For some, this is a rollercoaster ride too far: near or at the very bottom of the run, when their lunch is leaving through their nostrils, they bail out, just before the ride picks up and shoots north to new heights. Those who bailed at the bottom look on as the rollercoaster soars upward once more. In missing out on the spectacular ascent - for stocks can rise as well as fall - those left behind settle for a diminished retirement.

These poor saps (mis)behave this way because their whole lifetimes have been inculcated with the misconception that, in retirement, preservation of capital is paramount, when in fact preservation of purchasing power is the only metric that matters.

And that’s the problem with The Cure. It's really really hard to stick with your plan and stay invested through the horrendous-but-always-temporary-declines. The cure for The Cure? Having a tough-loving, empathetic counsellor to stand between you and "the big mistake".

Self-serving? You bet. The truth as I see it? Bet the (termite-free) house.

The Cure in practice

Since 1995, UK Retail Prices Inflation (RPI) has grumbled along at around 3.4% a year4. Over the last three decades, our preferred low-cost, massively-diversified Great Companies of The World investment solution has returned around 9.6% per annum. Capturing this 30-year compounded premium is the difference between a dignified, independent retirement, where the money outlives the people, over one where the people outlive the money.

Are these returns guaranteed going forward? Absolutely not. But if history doesn’t always repeat, it certainly rhymes; over almost any meaningful timeframe, The Great Companies of The World have delivered an inflation-busting return as a reward for sitting through their stroppy patches. That’s all I can say. That’s my story.

If you know of a better way to preserve your purchasing power in retirement whilst also building a meaningful legacy for those you have to leave behind, crack on.

Having stated the problem, and maybe scared you witless, I hope the above figures give you optimism and a glimpse as to the only rational solution for a healthy couple facing a three-decade plus retirement.

If you have the stomach for it. Buckle up.

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We survived Christmas: another memorial to mammon recedes in the memory. Crapulent waistlines expanding, gym memberships booming, February cancellations looming.

Through and amongst all of this, we must continue to plan for our future selves: a typical three-decade retirement means enduring enjoying 30 or more Christmases. These events don’t just go away when that career thing ends!

Whether we are spending inordinate amounts on trinkets, baubles and wrapping paper or just the mundane things that the rest of the year offers up to us, life and its attenuate costs needs funding.

Typically, retirement funding has been spelt p-e-n-s-i-o-n-s.

Which, in a somewhat tortuous way, leads me to the theme of this first essay of the 2025. Viz: what the hell are we doing with pensions in the UK?

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Last year’s October Budget has generally been received like a bucket of cold sick. As some of us predicted, the UK pension landscape was indeed fruit of a low-hanging variety. So-called money purchase pension pots (also known as defined contribution, personal pensions etc) were once more brought into the Inheritance Tax (IHT) net, as they kind of were until 2015.

Personally, I don’t have much issue with this. Personal pensions are there to provide some form of retirement income. They were never intended to be intergenerational wealth transfer devices.

“The Financial Conduct Authority has just announced that 75% of consumers aged over 45 either do not have a clear plan for how to take money from their pension or didn’t know they had to make a choice…. Only 40% of people know their pension is invested in the stock market.”

Moira O’Neill, Financial Times1

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But…

Here’s the rub (and thanks to an excellent if paywalled article by Moira O’Neill in the FT): the continual fiddling by politicians with pension rules and regs has eroded faith in the UK pension system. And that is a very bad thing. The constant changes outlined in the article are an insult to the millions of people who have, with entirely noble intentions, delayed gratification, put aside money into their pension pots to save for their future selves and thus be less of a burden on a decrepit State.

As my friend and fellow IFA Alan Smith states in the article

“Your pension pot is now subject to Inheritance Tax. Before this proposed change it wasn’t. But before that it was.

But you no longer have a Lifetime Allowance. But before that you did. And before that you didn’t!

You now have an Annual Allowance. But before that was introduced you didn’t. But before that you did!

The bigger issue here is the constant meddling with pension legislation.”

It’s not just the rules being rewritten over and over again. It’s the complexity of the rules themselves that further push people away from even thinking about pensions, about whether they have “enough”.

HMRC’s pension tax manual is a gargantuan, sprawling mess of good intentions and entirely foreseeable - for those that choose to see - consequences. According to Ms O’Neill, the section on the Annual Allowance alone runs to 4,888 words (four times the length of this squib). I’m supposed to know what I’m doing in this field; more and more I doubt myself and have to lean on third-party technical support providers to help me navigate the advice I give.

More evidence that things are broken: pre-Budget, some people were nervous that pension tax-free cash was going to be further capped or even scrapped. So a significant number took their tax-free cash out a few days prior to 30th October, many of them on the understanding that they could put it back into their pensions within 30 days. Indeed, life assurance and pension platform techies told advisers this could be done. In a move that redefines the phrase “incredibly unhelpful”, only after the event did HMRC issue a briefing note saying this was not possible, and that if you’ve taken the toothpaste (tax-free cash) it can’t go back into the tube.

If the pros can’t grasp all the pension regulations and embedded nuances then Civvy Street doesn’t stand a chance. And that’s unacceptable.

The Problem: Final Salary Swanks v Money Purchase Plebs

A grotesque feature of our pension landscape is the massive “Them and Us” disparity. The mind-bogglingly complex UK pension rules are devised by people upon whom they have the least impact.

Civil servants, like most who “work” in the public sector, enjoy Final Salary (AKA Defined Benefit) pensions. Cripplingly expensive to fund and run, these are almost extinct in the real world. Somehow, in the public sector, without going to prison, you can run these schemes unfunded2. This means that Petra (you, dear taxpayer) are paying Paul his index-linked, guaranteed final salary pension this year. And the next. And so on.

By contrast, our pension pots are exposed to the vicissitudes of stock market ups and downs, of annuity rates whizzing one way and other depending on prevailing inflationary forces, interest rates, Saturn’s position relative to Mars etc.

The people that draft pension legislation have none of these concerns. They know exactly when and what they will get in retirement. Us Money Purchase Plebs are at the mercy of these Final Salary Swanks, the politicians of all parties (for they too enjoy gold-plated, index linked pension benefits) and their civil servants, all 478,000 of them.

The essential problem is this: politicians are short-term, pensions are long-term: “Plebs over here have multi-decade pension pots that we can extract money from now to give to that faction over there that might vote for us Swanks in a year or two.”

This is the tension that must be resolved. How?

Solution

We need a cross party consensus (stop giggling) to take pensions out of politics. Much as I’m loath to suggest yet another quango stuffed full of the unemployed in suits, there is a desperate need for an independent office that handles pension legislation, one not subordinate to political influence.

A body that is only allowed by law to only bring in subtle changes to pensions every, say, 20 years or so. A body run by people who understand pensions and long-term planning. Obviously I would be absolutely perfect to run it and and am open to offers, although I’d need to work on my team skills.

In a brave pincer movement that will never happen but which gives me a warm glow every time I think about it, we should simultaneously move the public sector from their final salary arrangements to money purchase/personal pensions. Yes, there will be much wailing and gnashing. But it has to be done. Kicking this down the road will just mean bigger problems later. It is inequitable that the people who decide how and when we can take money out of our pension pots, how these pots are taxed in life and death, have entirely different retirement arrangements to those they impose these rules upon.

Is this pie in the sky stuff? Maybe. But to dare to dream is a start. And if you can’t dream a bit at the start of a new year, when can you?! Happy New Year to you all.

One of the aspects of visiting my parents at their Spanish villa is the constant noise and argument - not so much from Mater and Pater - although Clan Lincoln can get into a barney with reflections in a mirror - but from the Screen of Death (SOD) lurking in the lounge.

The SOD gets turned on at the waking hour and switched off before bed. Sometimes, it shows sports, which is a good thing. Most of the time, it’s tuned to one of a myriad of 24/7 “news” channels, which is a bad thing.

Why so?

In short, the SOD is a day-long kaleidoscope of stories about people you will never meet, in parts of the world you will likely never go to, suffering fates that you have no control over.

Talking heads bicker back and forth about the latest "Catastrophe-of-Catastrophes"© before cutting to an advert about cat food or incontinence pads.

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The SOD makes you feel sad. We act on feelings as much as logic. And, heaven knows, it’s been an emotional 2024 thus far.

Despite the omnipresent SOD, we somehow survived the UK and US elections. The sun continues to rise in the East. Piers Morgan is still wrong about everything. Jeremy Clarkson remains a latter-day farmer. Life goes on.

Gratitude remains the Attitude

As we hunker down for Christmas, as long festering family tensions explode over whether or not the brussels sprouts really have been overcooked this year, let us pause for breath. Whatever travails we suffer, we exist in the very best time ever to be a human being, in a part of a world that is generally the least evil. Millions would swap with us in a heartbeat, and appear to be doing so with consummate ease.

Unfortunately, as part of the Dying Legacy Media (DLM), the SOD has no time for gratitude, for reflection. The run up to Christmas is typically a quiet news period and nature abhors a vacuum. Thus the DLM will turn to its carousel of tired memes and tropes. It’s been a few months since a “married” TV presenter was revealed as having had homosexual affairs with minors. There must be a revelation or two coming down the line. Those blank pages won’t fill themselves. Note: the very day after I wrote that line Greg Wallace’s “story” broke. Go figure.

Back to the vacuum and the Comic Money Sections of what some folk touchingly still call “newspapers”. Over the next couple of months, filling the void, expect to find these full of “expert” predictions about what will happen to markets and the economy in 2025 (wow - twenty years since we finally won back the Ashes. Where have those two decades gone?)

That these experts get their calls way more wrong than right is apparently of no consequence. We must listen to them! They are, after all, experts.

"We have long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie [Munger] and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children."

Warren Buffett

According to my extensive research, the predictions are generally in the ratio of twenty “Bad Things Will Happen” to one “Things Might Pick Up”. Fortunately for you, Dear Reader, your correspondent is here to hold the Cassandras to account.

Here’s a beauty from Christmas two years ago:

Putting it politely, Mr Wilson was having a moment. In 2023, US equities enjoyed a total return, with dividends, of 20%1. Corporate earnings went up by 7.4%. To say that Mr Wilson’s prediction was merely wrong is akin to concluding that nascent birdman Icarus made a slight misjudgement around wings, beeswax, and proximity to the sun.

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Will this stop Mr Wilson and his ilk from Cassandaring into 2025? Categorically “NO”.

Other examples are everywhere for those who care to look. You don’t, for instance, get to be the “world’s biggest wealth manager” without knowing your onions, without having the magic crystal ball. Except, well, no, apparently you do. Here’s another dud, this time from wealth behemoth UBS in August 2019, before the Wuhan Lab-Leak episode:

Since that Cassandric headline, The Great Companies of The World (GCOTW) have returned 62% all in, which is an annualised return of 9.7%2. Those are life changing figures for most of us. A pension fund invested in those Great Companies with a value, say, of £617,500 five and half years ago would be a seven figure sum now. That could be the difference between a dignified retirement, where the money outlives the people, and an undignified one, where you go cap in hand to the children for handouts (also known as: “I’d rather have root canal surgery without anaesthesia.”)

Let us hope that the majority of clients with UBS did not act on that nonsense. Some would have done, and now face having to work x number of years more than desired, because “Cassandra”.

Ignore the prognosticators

The moral of this Christmas story? As you sip the eggnog, ignore the prognogs. It’s all for the clicks, as the yoof say/said (I’m out of the loop. I’ll ask The Boy). Enjoy the company of those you love and cherish. Everything else can go to the hell, which, if you watch the SOD, presently seems to be our chosen destination. It isn’t and, once more, we must be grateful for that: this really is the best life. Embrace it.

Merry Christmas to you and yours. And, if you can, take the batteries out of the remote control.

So it’s done, over, finito. I watched the Budget so you didn’t have to. Hopefully you didn’t.

You can Google “Budget Summary” and get back a zillion squibs telling you in detail who’s pips are going to be squeezed and where. Mine, in its entirety, is below:

OK, that was a bit terse. Let’s expand a little bit. The positives:

• Ms Reeves was assured and confident in her delivery. If she was nervous, she didn’t show it.

• The maximum pension tax-free cash amount of £268,275 was left alone (yes, leaving things no worse than they were before counts as a positive these days. Forgive me - straws are being clutched at).
  Sadly, reading my trade rags, many advisers (and the Dying Legacy Media, see below) thought it was a good idea to act on the idea of tax-free cash potentially being reduced. Awkward conversations lie ahead for such folk. If you took your tax-free cash from your pension prior to the Budget, good luck in trying to squeeze that toothpaste back in the tube.

• Pension tax-relief was left alone (another clutched straw). If you pay 40% income tax, it still takes just £60 of your hard-earned to get £100 in your pension pot. That’s a good deal. Take it while it’s on the table. Take advice, natch.

• ISAs were left alone (final straw clutched).

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And that’s about it for the positives. There were hikes in Capital Gains Tax (CGT) but these were all-but-guaranteed to happen prior to the event. In a masterful example of “framing”, the CGT changes actually felt better than what some of us (me) had anticipated.

The hike in Employer National Insurance was the most egregious thing. It’s a tax on workers, regardless of the slippery word play of the politicians. A business that has to pay 1.2% more in tax/NI is a business with 1.2% less to give to its staff. There is no magic money tree to make up the difference.

Other stuff around the fringes (Business Asset Disposal Relief, Agricultural Reliefs, Stamp Duty on second/investment properties) got hit. I don’t work with farmers and so can’t pretend I know the impact of the changes on them; they don’t seem happy. Regarding the Stamp Duty hike: can the last buy-to-let investor please turn off the lights?

As has been the case for years, virtually every tax-free allowance remains frozen, allowing inflation to do the Government’s dirty work on its behalf.

The Big Change

The big change was bringing back unspent pension pots into the Inheritance Tax (IHT) regime. In my previous essay, I had suggested this was a possibility. It was low hanging fruit. And - in honesty - I can’t grumble about this.

In 2015, when George Osbourne (Google him, he was once a thing) introduced “pension freedoms”, allowing pension funds to cascade down generations without being liable for IHT, there was a collective gasp from all involved in financial services.

No-one had seen it coming. No-one had been lobbying for it (as far as I know). Suddenly annuities became irrelevant overnight, and the stock market reacted accordingly, instantly downgrading the share prices of our historic life assurance companies.

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Although, from a pure tax-planning perspective, it was a great move it was also a decidedly odd thing to introduce: personal pension funds were never designed as trust funds that the wealthy could both have access to if needed and then pass on IHT-free to their children and grandchildren.

Think about it. With personal pensions you already get:

1. Tax relief going in. The Government chips in with 20/40/45% of the cost, depending on your marginal Income Tax rate.

2. Your pension funds grow free of Capital Gains and Dividend taxes.

3. You can have 25% of your pot back as tax-free cash in retirement, subject to the maximum mentioned earlier.

And Mr Osbourne thought “Nah, not quite good enough. Let’s make it IHT-free as well!”

No more.

We’ve had nearly a decade of this situation being too good to be true and have nearly three more years to enjoy it: the Government is consulting on this and the reversal in the IHT situation won’t happen until April 2027. This is a very long lead-in time.

If you have significant unspent pension funds, and if paying the least IHT is what gets your juices flowing, dying between now and April 2027 would seem to make good sense, although it will interfere with your social arrangements.

As a result of The Big Change, your financial plan (the pretty graph per below) will likely be different going forward. For my client/friends, expect this change to be covered during your next Annual Planning Meeting (APM). Be still, thy beating heart! We may even discuss using some of your unspent pension fund to buy an annuity, God help me.

The point is your planner/adviser should talk about this change with you, and demonstrate potential strategies to mitigate it. But there is no rush, no need to panic. April 2027 is still a way off. Act in haste, repent at leisure, and all that.

Post-Budget: How We Look From The Outside

Honestly: not that great. Again, in the previous essay, I suggested things were looking “a bit late 1970s”. The Budget did nothing to reduce this. An Irish adviser and friend sent me this message soon after Ms Reeves sat down:

“Outside looking in … UK doesn’t seem great right now and the short term future, not very bright. Just an observation and I’m not “kicking when down”. A vibrant UK definitely helps Ireland. The wheel will turn no doubt!”

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Let’s hope the wheel does turn. We have to reach bottom before we can start crawling back up. The State is bloated and out of control. There will never be enough tax to fund it. Churchill’s quote at the top of this masterpiece is as prescient now as it was 120 years ago.

Anyway, other events happening over the next few days will probably have more long-term impact on this country than the Budget. Economically and culturally, for good or bad, we follow where the USA leads. Let’s hope whoever wins, the other side will accept the result with equanimity. The last thing we need are more stateside reports from the Dying Legacy Media about “mainly peaceful protests”.

We survived the Budget. We wil survive the US election. Onwards and upwards, friend!

Clients (friends) are used to my response when asked to forecast on some future event that may zig this way or that: “I don’t have a clue, and neither does anyone else.”

And yet.

This looming Budget is causing more than a little ripple of a disturbance in The Force. Much as I try to effect a languid sangfroid, even Lincoln The Stoic finds the whole thing mildly discombobulating.

It’s not going to be a fun event. Apparently there is a black hole in the nation’s finances or something, and Labour didn’t know about this before Mr Sunak gave them his gift-and-platter combo on July 4th.

Channelling my inner Sir Humphrey, the veracity of The Hole seems askance to the actuality, especially as:

1. Nobody at the Treasury/Civil Service seems able to explain where The Hole is and what caused it;

2. All potential incumbent governments are given a thorough briefing by the Office of Budget Responsibility (stop laughing at the back) on the state of our finances before assuming office.

Regardless, we have a Hole, and by God they’re going to fill it.

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The Hole and how to fill it

In short: taxes are going to go up. Having ruled out hikes to the big hitters (Income Tax, National Insurance and VAT), that leaves a bit of a dog’s dinner for Ms Reeves to pick through. She is going to have to turn her bobbed head towards these (in no particular order):

• Capital Gains Tax (CGT)

• Inheritance Tax (IHT)

• Pensions

• Dividends

• ISAs.

Am I saying all of these will come under attack? No. Am I saying some of them will? Yes: like its predecessors over the decades, this Government doesn’t see its spending as the problem. The solution is never less spending. It’s always more taxes. So taxes will be higher on the 31st October.

But which ones? In the five categories above, there are countless variables.

If CGT rates rise, by how much? And when? Straight after the Budget, or from 6th April next year? And if they do rise (and of all the imponderables, this seems the most likely) so what? You only pay CGT if you sell. If you don’t need cash from your investments (more on this in a moment), maybe you’ll just sit on them and pray for lower rates in future. But that doesn’t help fill The Hole now, and “now” is about as long as most politicians see into the future.

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Perhaps it’s IHT. The IHT thresholds have been frozen since 2009 (yes, 15 years ago!) and are to remain so until 2028. More and more estates are thus dragged into paying it simply through “fiscal drag” (NOT Eddie Izzard as Chancellor), with IHT receipts doubling between 2012-22. Not sure there’s a lot of scope here. Could pension pots lose their IHT-free status?

Of which, pensions are always on the table when it comes to getting other people’s money. Perhaps tax-free cash will be restricted in some way? Or rather, restricted more: it’s already capped at 25% of the value of your pension fund, or £268,275, whichever is less1. But as with CGT, fiddling with tax-free cash won’t bring in much dosh now; people who have significant pension funds - the ones who would be hit by such a change - may just defer taking their pension benefits and use the other retirement income streams such folk typically possess.

Labour has ruled out bringing back the pension Lifetime Allowance and, on this, I almost trust them. Doing so would be finickety as hell (as we finance boffins say) and, unless there were blood-pressure-raising special exemptions for the NHS, would see a resumption of our poor benighted doctors and dentists taking early retirement to avoid pension taxes.

“Nothing is certain except death and taxes”

Attributed to Benjamin Franklin, 1789

An instant winner is a flat rate of pension tax-relief, say 30% across the board. That’ll sound good to the Left, won’t further upset already pissed off pensioners, and will probably raise some revenue for The Hole. It sounds good on paper but is a little faffy to actually implement.

And dividends? The annual Dividend Allowance is a joke at £500 and might as well be scrapped. Raising tax rates on dividends - paid to those who have investment portfolios and/or own businesses and thus have only got where they are in life by oppressing the masses or something - is a possibility. It won’t really dent The Hole (if holes can be dented).

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Finally, ISAs. Maybe Ms Reeves will bring in an allowance on how much one can accrue in these over the course of a lifetime, say £1M. She could also reduce the annual ISA allowance but, like nearly all the various exemptions and thresholds, this has been stuck for years (seven and counting) at £20,000. Allowing for inflation since 2017, that’s now just £15,000 in real terms. As ever, inflation is already doing the heavy lifting on behalf of our politicians.

For the love of God, Nick, give us a definitive

Well, that’s the point of this squib: I can’t give definitives. Luckily for me, neither can anyone else. If you want certainty, take Mr Franklin’s maxim above to heart.

A meaningful financial plan, marrying one’s aspirations and dreams with one’s finances, built on a detailed, personal lifetime cash flow forecast, is for the long-haul. As such, we don’t change our financial plans unless circumstances change. It’s an echo of “when the facts change, I change my mind.”2

No change to your circumstances or the lay of the land? Then no change to your plan. And vice-versa. Post-Budget, if things affect my clients, I will be in contact with them to review and refine their financial plans accordingly. But not before the event. Down that road lies madness.

If you need cash now, act now

Your financial plan should allow for known short-term expenses. Planning on purchasing/rebuilding3 that second property abroad/gifting money to the rugrats/putting the grandchildren through private education? Chances are you have been planning this for years. Now is the time to sell down from one or more of your long-term investment portfolios to fund this short-term spending need.

You are NOT doing this because of some impending Budget; you do so because you were always going to do so. You have already decided to spend the cash. The Budget is not driving your decision, your financial plan is.

Although, given the above, perhaps do it right now: The Hole won’t fill itself.

The nights are drawing in. Ghastly. We’re already comfortably more than halfway through the year, and I’m overdue for producing the bi-annual business and life update that none of you have been craving.

So, in no particular order:

Elections

We had one. It didn’t go well for Rishi “Fast-Track” Sunak. It went very well for Keir “Charisma” Starmer, who’s wittering on about a £22BN black hole in the finances that nobody knew about. Strange, given that all potential incumbent governments are given a detailed breakdown of the nation’s finances before taking office.

Anyway, we’re going to have a Budget in October. Spoiler: it won’t contain tax cuts. If, when it happens, there are horrors that directly affect your financial plan, we will be in touch. Until then, nada: we don’t change financial plans until circumstances change; the best-laid plans of mice and (wo)men are destroyed by acting on guesswork1.

In my eternal search for things to be grateful for, let’s rejoice that our election was over mercifully quickly; in the US, there is also an election looming (news to you, I’m sure). I can only imagine the forthcoming agonies in terms of media coverage and Trump Derangement Syndrome. Oh well! If you can, ignore the news and bury the TV remote. Go for a walk. Take up a hobby. But keep the Screen of Death turned off.

August Market Meltdown (didn’t happen)

The Dying Legacy Media (DLM) - always desperate for the next bad news story and resultant clicks - had a proper bedwetting at the start of August in reaction to average market volatility.

As I sit typing away in the bunker, naked, greased up and strapped in, all the above markets are near-back to where they were before recent travails, including Japan’s. No doubt you’ve heard about this remarkable recovery. Mmmm.

What to glean from this? Nothing, except brace yourself when we get a proper, sustained market correction: based on the DLM’s reaction to August’s non-event, it will go thermonuclear when a significant, unpleasant, but always temporary decline comes along.

And it’s overdue. The last tough, lengthy bear market was the 2007-2009 Credit Crunch. This was before the omnipresent smartphone had taken hold of our eyeballs, before TikTok and all the other revolting nonsense. Wait until “social media” has a real bear to get your phone buzzing every five seconds.

My adviser friends and I discuss the strange events of early August (and more) in episode 51 of the now-genuinely-award-winning TRAP (The Real Adviser Podcast). You can listen to us or watch us. Do both, ideally, because we’re as hungry for clicks as all the other hustlers. The show is aimed at an adviser audience, but we have a vocal and passionate sub-set of civvy street weirdos fans.

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Values to Vision Practice Update

The business year ended in June, and it was our best year in terms of turnover. Most of us have things we regret doing, and I’ve probably got more than most. But setting up on my own in September 2008, having been an adviser since 2001, is not one of them.

It’s been a wonderful ride so far. I can’t adequately express my gratitude to the clients/friends who have been on it with me, whether over the past 16 years, the last 16 months, or the last 16 weeks. You and your financial health are my consuming business, and it is my business to do well for you in the only terms that matter: ensuring your life goals are perfectly aligned with your finances.

Are clouds on the horizon? Not really. AI might change things on the fringes, but the intersection of money and meaning is a people business, and the last time I checked, you and I are people. Ongoing regulatory pressures show no sign of diminishing and are a time and mental burden. Most of it is utterly pointless, box-ticking, and soul-destroying. It is the price I pay to do the thing I love.

I am often asked about my long-term plans for the business. Suffice it to say, I have no plans to “retire” in the traditional sense. As expected, The Lovely Penelope (TLP) and I have a financial plan. We can leave work in the next few years without reasonable fear of running out of money later on.

TLP may do this—she’s the headteacher at a “shiny outstanding” school, and it’s rewarding but draining; constantly contending with endless needy voices throughout the academic year takes its toll. And as for the children….

Me? I’m going nowhere. Work is more than money: I enjoy it; it gives some meaning and structure to my time and helps quiet the voices. I’ll do this thing until I no longer want to. I can’t see myself putting my feet up in the next decade. And that’s all I can say.

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Holidays

TLP and I have been on various excursions in 2024: Budapest, Limerick, La Herradura, Granada, and, most recently, La Rivière-Enverse, in south-eastern France, visiting mon frère and his wife. We went by train with a change in Paris2.

It’s a stunning part of the world. Italy, Switzerland, and Chamonix are nearby. A place full of potential Alpine pursuits, including paragliding. As the image above indicates, my first attempt involved an early combo-platter of gravity and land. However, I knuckled down and buckled up, and soon I was soaring over the valley. Superb.

I also had a bit of a crash landing, but that’s another story. Suffice it to say: long walks aside, Alpine endeavours are not for me. I went skiing once about 35 years ago and still sometimes wake up screaming incoherently from a nightmare involving a tangled contretemps with a ski lift.

I hope you and yours had (yep, past tense) a pleasant summer. Speak in October.

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Friend,

What is a bear market? It’s when the share prices of The Great Companies of The World (GCOTW) fall by 20% or more.

Since 1970 (54 years and counting), there have been 12 of these horrors (and they are emotionally horrible)1. One every four to five years.

Aside from a brief bear during The Wuhan-Lab-Leak-Bedwetting, we haven’t had a prolonged bear market for over a decade.

We’re probably overdue for one (in no way guaranteed, blah blah blah). Maybe we’re already at the start of one (I’m currently holidaying on The Continent, and my emissaries tell me of turbulent times back in God’s country).

We should prepare accordingly. How?

By doing absolutely nothing.

Let me explain.

The 54 years since 1970 to now is a decent slug of time. It could easily represent a typical work-retirement arc:

• 25 or so years of what we financial boffins call accumulation work saving (putting money into pensions, ISAs and other things)

• 30 years of decumulation retirement spending (taking money from pensions, ISAs, and other things).

To keep things simple, let’s assume you were a callow 35-year-old investing £10,000 into the GCOTW 54 years ago.

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A very bumpy road

In that time, you would have experienced a hellish ride involving the 12 bear markets mentioned earlier. These are the actual peak-to-trough declines for each one:

1. Fall of 22%. Your £10,000 is worth £7,800

2. Fall of 46%. Your £7,800 is worth £4,212

3. Fall of 27%. Now £4,212 is £3,075

4. Fall of 24%. The £3,075 is £2,337

5. Fall of 26%. £2,337 becomes £1,729

6. Fall of 21%. Your measly £1,729 is £1,366. Remember, you started with £10,000

7. Fall of 51%. The £1,366 is whittled down to £670

8. Fall of 59%. Now it’s just £274

9. Fall of 23%. £10,000 now sits at £211

10. Fall of 20%. £211 becomes £169

11. Fall of 34%. £169 now £112

12. Fall of 27%. Your portfolio is worth £81.

After 54 years and 12 bear markets, your £10,000 is reduced to the cost of just over two KFC party buckets.

At this stage, as a 90-something-year-old with nary a pot to you-know-what-in, you’d be suicidal anyway (because going to the children on bended knee for money is beyond horrible, worse than spending time in a locked room with Piers Morgan), so why not go out on an artery-hardening binge of the Colonel’s filth?

You wash down your finger-lickin’ diabetes-in-a-tub with a large glass of absinthe and perhaps look for someone to sue. Good luck with that: your financial adviser from 1970 sold up in 1990, had a wonderful retirement, and dropped dead at age 100 in 2020.

Thankfully, we’ve only seen one side of this story so far. Put down that deliciously seasoned lump of fried fat and undercooked thigh. It’s time to buck up the mood somewhat.

The road winds this way - AND that

Of course, things didn’t pan out like the above (thank the Lord). And here’s the rub: markets can go up just as easily as they can go down. More easily, in fact.

In reality, your £10,000 from 1970 is now worth a tad more than two KFC party buckets. It’s somehow grown to just under £3,000,000, which is a compounded annual return of 11.1%.

But how did it do this? How did it grow nearly 300 times when, every five years or so, the latest nasty bear chopped it down at the knees?

It’s because the bits between the recurring bears were the longer-lasting, mood-enhancing, performance-boosting wonders known as bull markets.

My definition of a bull market is when share prices - without warning, for they cannot be foreseen - go on a long "up" period for no real rhyme or reason. And bull markets typically last longer than bear markets. Their ferocity in the life-affirming ascent tends to top the bulls’s depressing descent.

We don’t know when the ascents are coming—we can never know—but we can know they will come. Similarly, we must know that the Great Companies are no less great than before in a likewise unforeseeable bear market. They are just being temporarily valued less.

For example, regardless of each company's share price in a bear market, you will still buy the latest great trinket from Apple or Samsung.

The Great Companies don’t change in a bear market; our psyches change. Investments don’t lose money; investors lose money. Panic, sell, turn paper losses into real. Rinse and repeat.

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You have to stay on the winding road

All of that is a long and winding way of saying this: to get the 11.1% annual return over five decades and more, you had to sit through and stomach the gut-churning 12 bear markets along the way.

No bear markets, no 11.1% return. No bear markets, no financial salvation. We get life-changing returns because of bear markets, not despite them.

Do you want some of that? It’s yours. It’s waiting for you. You “just” need to own and keep owning slices of the Great Companies. It's easy to say but hard in practice because… humans.

The journey to financial salvation is winding and long. At times, your vehicle—your mind—might drift to the very edge of the road and stare down into the abbyss, into the valley of the bear.

It is your choice as to whether you tumble into it.

In 1970, two years after Paul McCartney wrote his tune, contemporary Jim Morrison penned the lyric, “Keep your eyes on the road and your hand upon the wheel.”2 The sunlit uplands are there for those who, through bull and bear, stay on the road, pulling away from the valleys with serene indifference (well, maybe with some angst and the help of an empathetic, caring financial adviser).

The next bear is coming. We don’t know when and have no idea what will cause it before the event. We won’t know when the bear will end. We do know that the DLM (Dying-Legacy-Media), comprised of such hail-fellow-well-met types as Beth Rigby et al., will portray it as the end of times.

It won’t be.

Have you got the stomach for it? Are you ready for the ride?

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Our in-house media team have been up all night and through the early morning to bring you this comprehensive missive. Enjoy:

Let's see what happens regarding new legislation, taxes, etc. When the facts change, we change our financial plans accordingly. Until then, we sit tight!

Hope that wasn’t too verbose.

Nick

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Friend,

As a stubborn bastard someone with a high internal locus of control, I’m not great at taking instructions. The Lovely Penelope (TLP) sometimes gets through the cranium but must persist. Fortunately, persistence is one of her many admirable qualities.

An example of my pigheadedness: I employ an external compliance consultancy to ensure I abide by the three million or so rules my regulator, The Financial Conduct Authority (FCA), has etched onto stone tablets that, laid end-to-end, could reach Berwick and back.

The consultancy audits my business annually and gives me suggestions for improving it. I do all the essentials well and am extremely compliant, but the consultancy nudges me to do other non-essential stuff that would be “nice” and “please” the regulator, which would apparently signal “best practice” or some other Horlicks.

To which I always say, “No, not doing it.” And as these words leave my mouth, a tiny part of my brain screams, “You’re paying for their advice. Take it, you complete moron.”

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Influencers and all that

We are all wired differently. Many of us are open to new ideas and can take suggestions and run with them. This can be a good thing. However, it can be dangerous in a world where both old and new (social) media give seemingly everyone a loud, persistent voice on almost anything.

Especially where bad ideas and your money intersect.

I am unlikely to be influenced by financial pearls of wisdom uttered by an actor-comedian in the comic money section of a Dying Legacy Media newspaper (paywall)1. Others-God help them-may be more susceptible.

Below is a screenshot from the offending article in which former Young Ones star Ade Edmondson is “interviewed” on his thoughts on money and investing. In his defence, he comes over as a decent egg2. Just not someone whose views on money should be taken without a shedload of salt:

There it is again, hiding in plain sight

Central to the piece was Mr Edmondson’s cataclysmic misperception that pensions and investments are rip-offs and property is where you go to make money. He provides no evidence for the former and seems oblivious to how the holding time fallacy (the fact that we own properties for years and years) contributes to the latter.

Also, property is great because it’s “an actual thing.” So is syphilis, and I don’t see a mass clamour to own some of that.

Mr Edmondson’s house has doubled in value in 15 years. The holding time fallacy writ large: a compounded annual return of just 4.7%. As his “best investment”, that’s distinctly unimpressive. Granted, it doesn’t include the potential rent that could have been earned if the property had been let to tenants. But neither does it allow for wear and tear, renovations, mortgage interest repayments, Council Tax and all the seemingly endless bills that come with running a household.

What could his pension plan have achieved over that time, even allowing for “someone is screwing you over”? If he had invested his pension solely in The Great Companies of The World (GCOTW) via a massively diversified, low-cost global equity fund, he could have seen a return of around 11.9% per annum3.

Let’s adjust for an estimated ongoing annual advice and fund cost of 1.5%. We get an annual return of 10.4% over the last decade and a half. The result? While Mr Edmondson’s property doubled in value in 15 years, his pension fund would have more than quadrupled.

This ignores any tax relief he may have gotten on the way in. For a higher-rate taxpayer to get, say, £10,000 into her pension, her net outlay is just £6,000. Think about that: you can turn £6,000 into £10,000 (almost) overnight without doing a thing or risking anything. Rinse and repeat, year after year, invest the money sensibly, and lo: that distant thing on the horizon winking at you is financial salvation getting ever closer.

Mr Edmondson’s worldview is based on a disastrous misperception about pensions/investments, a misperception completely unchallenged in the article.

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Just a bit of journalism, for once

Annoyingly, the “journalist” writing this piece is more of a note-taker. There is zero back and forth, with no pushback. Who is screwing you over? When? What spurious charges? Given this puff piece is sitting in the comic money section of what was once one of the world’s great newspapers, perhaps you’d expect the fallacies coming out of Mr Edmondson’s mouth to be questioned.

After all, the interweb gives even the laziest hack access to endless stock market information for free. Surely, he or she goes into these pieces armed with such information, ready to challenge lazy assumptions and, in so doing, educate the reader.

But there’s nothing. And so another misperception continues its transmogrification into actual fact (because with money myths, reality is what you make it). Worse, Mr Edmondson has passed the poison on to his grandson, who in turn is now likely to invest in property over a low-cost pension because “granddad”.

Perhaps decades ago, Mr Edmondson’s father did him the same disservice. The cycle repeats, and the poison gets passed on.

It’s not about making money for its own sake

“Yes, but Mr Edmondson’s happy and not obsessed with making more money.” I hear you.

I’ve worked with a few people only interested in making money. They were invariably miserable because “enough” is never “enough,” and we soon parted ways. The accretion of lucre for its own sake is criminal on two counts: like Keir Starmer, it’s sad and boring.

Money has one role: to enable choice. If you have money, you can make choices that align with your values. If you don’t have money, you’ll probably find choices made by others dictate your life. That is my idea of Hell.

Creatives like Ade Edmondson seem to suffer more from expensive money misperceptions than most (based on no empirical evidence whatsoever). Maybe it’s the right-brain, left-brain, Apollo-Dyonisius thing going on.

Perhaps not coincidentally, many actors seem to work forever. Some of this is because of “their calling,” their love of the craft. More is surely because they made poor money decisions based on misperceptions.

That’s fine. Let them crack on. Just don’t be influenced by their financial pearls of wisdom.

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That said, there is great cause for optimism….

Friend,

So, 4th July it is. As a financial adviser, this is when I bombard you with charts showing that “the markets don’t care who’s in power” and how, under Red and Blue administrations, the value of The Great Companies of the UK has increased over the decades.

I’m not going to do this. I like you too much. Despite my loving protectiveness, you’ll see the graphs in one form or another over the next six weeks or so. Let that rest on someone else’s conscience. There’s nothing I can do about it.

Yes, the election will dominate the news (you watch it, don’t you? We’re all flawed in one way or another). Yes, it will be depressing. And yet, whoever is in power on 5th July, not much will change-and that’s a good thing. The power to change lies within you, not within the purview of politicians. Understand this and lo-that distant light is not a train bearing down on you but is instead the end of the tunnel.

What will change?

Whoever wins, taxes might go up. They might not. Don’t sweat it. Those of us in work already carry the highest tax burden since 1948. It’s hard to believe they can go up by a material amount.

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Under the “Conservatives”, Income Tax rates are astronomical. The Personal Allowance (that slice of your cake the beneficent State allows you to eat without first gorging on it) has been frozen for years. Capital gains and dividend exemptions have been slashed so far that they may as well not exist. Corporation Tax has just gone up by a third. Buy-to-let landlords are sinking under a raft of tax hikes and removed “perks”.

A Labour victory will hit private schools with a nasty little strain of envy politics, some red meat to keep a faction quiet for a while. Other than that?

Pensions and ISAs will probably be dicked around with in some stupid way, the stupidity of which is obvious to all but those implementing the stupidity. Both parties continually do this. It is what it is.

As an aside, on a cultural level, for half the population, I struggle to see the joy in having a Prime Minister who believes a woman can have a penis. Of course, the current incumbent is a man, and I’m not sure he has one. It’s all so confusing.

But there is good news.

Be the change you want to see

The election won’t materially change our lives. You are responsible for that. If you want to change your life, make changes. Have a plan, one that transcends short-term political nonsense.

The next administration will be out of our lives in four or five years, maybe a bit longer (but not much, probably). In the scheme of things, it’s not significant.

The same goes for the subsequent administration. And so on and so on.

However, you and I are here for the long haul. Our hopes and dreams span decades. We have a lifetime financial plan, and we stick to it. Current events-disturbing as they can be-do not deter us. We are aspirational self-starters and, aside from family, do not expect or seek help from others to achieve our vision and satisfy our values.

Which is just as well, given the above!

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To effect change, keep on keeping on

Your financial plan tells you the path you need to keep to. Regardless of the election outcome, per the terms of your plan:

• Keep on saving for your future self. Use all allowances as fully as possible. Yes, I mean ISAs and pensions (subject to them being continually dicked around with, as noted earlier)

• use every means to pay as little Income Tax as legally possible (if you want to pay more, crack on: HMRC accepts voluntary donations)

• if affordable, continue to gift as much money as possible now, with a warm hand rather than a cold one; the sooner it leaves your estate for your loved ones, the better.

Do the above, sit in your favourite chair, and figuratively stare out the window for decades as your adherence to your plan through thick and thin (easy to type, really hard in practice) delivers financial salvation.

Continue to treat the money media as nothing more than advertorials, constantly trying to lure you this way and that with the latest fad. Non-Fungible Tokens, anyone?

You and yours

At times like these, the greatest realisation we can have is that we don’t need politicians. They need us. Don’t give them headspace. This magical thing called life is too short. Grift and mediocrity are not for us - let those in that world swim in their sewer, never the twain and all that.

This Britain just about remains “Great”. Express gratitude. Tell your loved ones you love them, then tell them again. Smile. Do favours for strangers. Keep your friends close.

4th July? This, too, shall pass!

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The charming shot above is of Looe, Cornwall. It’s remarkable that, aside from the absence of cars, there’s very little clue that it was taken 100 years ago, in March 1924.

Unlike Looe, few things have remained unchanged over the last century. This includes—seamless segue alert—the world of investing. Since 1924, it has been completely transformed, and all the credit goes to a man few have heard of.

In March 1924, Looe denizens were going about their business, trying not to think about the horrors of “The War to End All Wars”, which had ended just five and a bit years earlier, taking with it the lives of 36 of the village’s young men. Simultaneously, over the pond, one of our cousins created something so remarkable and transformative that today, 100 years on, we take it for granted.

His name? Edward Leffler.

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It’s hard to find out anything substantive about him. His Wikipedia page is terse. We don’t know when he was born or died or where either event happened.

We know that, after The Great War, Mr Leffler sold pots and pans door to door in the American Midwest. And then, in a pivot so amazing that it makes the transubstantiation of bread and wine into Christ’s body and blood look like a cheap parlour trick, Mr Leffler went from selling saucepans to American housewives to selling salvation to all of us via his humble invention: the mutual fund.

How this transformation came about is, sadly, lost to time.

The mutual fund is born

There is the odd piece on the Interweb about Mr Leffler. But you must search hard; the quote below is in a piece from 1997:

In March, 1924, Leffler helped launch Massachusetts Investors Trust, the first open-end fund.  Its charter ensured, in Leffler’s words, that “investors could present their shares and receive liquidating values at any time.”

It’s hard to imagine that such dull words could contain so much dynamite.  But suddenly, a mutual fund could do something that was formerly unthinkable: it could grow.  It could survive a run of redemptions by replacing the departing shareholders with new ones.  It could raise cash from new investors to buy more stocks when they were cheap.  And it could spread its costs over a greater asset base, making it more profitable for the adviser to run the fund and  cheaper for investors to own it. [bold italics mine]

It’s that last line that contains our salvation. 100 years ago, to get a diverse investment portfolio, you would go to a stockbroker1. He (always a “he”) would craft one holding a range of shares in different companies and charge you enough for the privilege to put the children (his) through private school.

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Now, via the humble mutual fund, you and I can invest in superbly diversified portfolios chock full of The Great Companies of The World (GCOTW) for peanuts. And doing so is relatively easy: mutual funds (OEICs, unit trusts, or collective funds) are everywhere.

They are inside your Stocks and Shares ISA and personal pension pots. Massive institutional retirement schemes use mutual funds. They are that strange legacy Aunty Maud left you in the form of a yellowed, parchment-thin unit-trust certificate showing she invested £500 in 1983 with a fund management group that has been bought and sold eight times since.

A twelve-zero (caveated) success

Today, a century on, across the globe, mutual funds hold around US$63 trillion in investor assets. In longhand, that looks like 63,000,000,000,000 (I had to Google it). That’s nearly 30 times the size of the British economy. Like Piers Morgan’s ego, it’s the kind of size that one can’t quite comprehend.

Hold the love for a moment, though. It’s not all nicey-nicey. Mutual funds are prone to negatives:

• There are way too many of them. There are around 4,500 in the UK alone. Most investment groups are marketing firms with asset management on the side

• A lot of them remain incredibly expensive and need to be, to pay for all that marketing (see above)

• “Star” personalities running these funds, egos unchecked, can cause enormous financial loss and distress.

But, in the round, mutual funds have been an enormous force for good, giving us common little folk the ability to share in the profits of world capitalism. 100 years ago, that was strictly for the Rockefellers and Vanderbilts. Now, it’s for us all.

Mr Leffler changed the world in March 1924, and almost no one has heard of him. In a world where complete non-entities dominate popular culture, sometimes it’s nice to trawl through time and recognise those who anonymously changed the world.

Edward G. Leffler, the inventor of the mutual fund, was one such. Mutual respect, bro, as the culture says.

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Friend,

The most recent Hat-Tip Essay of 2nd April 2024 was superficially about cash savings. Actually, it was about the omnipresent danger of inflation to our financial wealth.

And lo, as if by magic, on that very day, the price of a first-class stamp went up by 10p (!) to 135p.

Three decades ago, the same item was a mere 24p. That’s a nearly six-fold increase.

Why three decades? Because that’s the typical length of a bog-standard average retirement span for Mr and Mrs U. Kingdom.

You are not getting a six times better stamp than in 1994, and you are not buying something that does six more things than it did that year. You are spending six times as much to stand still.

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If we use the stamp as a proxy for the increase in the cost of living1, we see that Lifestyle costs can increase enormously over such a retirement.

Torturing the stamp/Lifestyle analogy a little bit more:

Spending £20,000 a year in 1994? You’re now ripping through £112,500 to have the same Lifestyle as you did then.

“OK, Lincoln, we’re petrified. Give us some hope.”

Whilst the cost of Lifestyle was creeping up at 5.9% per annum, turning 24p into 135p without breaking a sweat, The Great Companies of The World (GCOTW)2 were appreciating at 9.0% a year from 1994 onwards.

Equivalent to a 3.1% annualised inflation-busting real return over the last 30 years, that’s not just keeping pace with inflation; it’s knocking it into a cocked hat. We are preserving purchasing power and growing the real value of your retirement nest egg.

Two questions that some may be pondering:

1. Is this sad obsession with Royal Mail stamps too simplistic? Maybe. Shoot me.

2. Do these GCOTW figures ignore ongoing behavioural coaching, advice and investment fees? Yep. But unless these exceed 3.1% per annum (and if they do, you’re being royally screwed), you’d still be OK three decades on. You may even have accrued a decent legacy for those you have to leave behind.

Pay heed to these figures if you want a dignified, independent retirement where the money outlives you. And be very wary of any adviser who neglects to put the dangers of inflation front and centre in their communications with you, now and for the next thirty years.

Everything else really is window dressing.

Can you remember where you were on 16th December 2021? Or what were you doing, and with whom?

I can barely remember what I had for lunch yesterday. Assuming that we’re all losing our marbles at approximately the same rate, I’m going to guess the answer to the above questions is a resounding “NO.”

Why that date? Because that’s when silly money ended1. Nine days before Christmas 2021, the Bank of England hiked the Bank Rate (the artist formerly known as Base Rate) from an insane 0.10% to a still-loopy 0.25%.

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Having had a drop of the hike stuff, reminiscent of historic Friday lunchtimes at The Lamb Tavern2, those wild City types couldn't stop themselves. Once they started imbibing the Bank Rate elixir in a Herculean effort to fight The Cost of Lockdown Crisis, the hiking continued at a record pace, settling at 5.25% just seventeen months later, in August 2023.

Bad news for borrowers. Good news for savers.

And it’s the savers we need to focus on. Finally, this overlooked group are getting a fair deal after over a decade of absolutely dismal cash-saving interest rates.

No, scrub that. What savers are now getting is a slightly less dismal deal.

Yes, as interest rates have increased, so, with a slight lag (!), have cash-saving rates. Rejoice! As of January this year, the average easy-access instant savings rate stood at 2.82%, the highest in 13 years.

Sounds good, right?

Wrong.

Purchasing power is the only metric that matters.

The only reason we hold cash is to be able to spend it later. What you can buy with your money - its purchasing power - is what matters. And inflation is to purchasing power what Sadiq Khan is to London: an unmitigated disaster.

Some quick numbers:

1. 2.82% average easy-access instant savings rate.

2. 8.66% Retail Price Inflation (RPI) per annum, three years to end January 20243.

Assume you had £100,000 in the bank and it had earned 2.82% a year for the last three years (it wouldn’t, but I’m being kind. Also, to keep things simple, I’m ignoring tax on interest. If you allow for this, the following figures are even worse).

After three years, your cash plus interest is £108,701 - nearly nine thousand pounds of “growth.” Nice!

But….

We cannot ignore inflation, which has been clipping along at nearly 9% through that period. To preserve purchasing power, those cash savings must now be £128,295, not £108,701.

The cash has suffered a permanent and irrevocable 15% decline in purchasing power. As we finance boffins are apt to say, this is distinctly sub-optimal.

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Cash has its place

We need the folding stuff to fund “lifestyle”. We need cash for those moments when

• the right money has to be there

• at the right time

• for the right reason.

Be it a new car, a memorable holiday, an extension to the family pad, clearing a debt, etc.

A personal example: The Lovely Penelope (TLP) and I have a fixed-rate mortgage that ends in a couple of years. Aeons ago, we set up investments designed to grow and be used to clear some of the debt. As that time approaches, those investments have recently been sold to cash.

The right money has to be there: if we miss two years of investment growth, that's too bad. We don’t have the timescale to weather the market's temporary declines, which come along as regularly as buses.

So, we’ll bite the bullet and accept that our money is losing purchasing power for the next two years. That’s the price you pay for the certainty of cash, of knowing it will be there because it has to be there.

As importantly, it’s also the price I’m willing to pay not to have my knackers on the chopping board: TLP devolves all the money stuff to me, and God forbid I cock it up.

But it’s still trash

So yes, cash savings are not as dismal as they were - they are just slightly less dismal. Cash remains trash. Understand the principle of purchasing power, and your perception of cash's role in your life changes fundamentally.

Furthermore, you will intuit that:

1. The danger to your long-term wealth is not that crazy place where fortunes go to be lost (the Stock Market).

2. The real danger is a Lifestyle cost that, thanks to the silent wealth killer called inflation, will typically more than triple in a bog-standard three-decade retirement.

3. Putting your retirement nest eggs into cash or other low-return assets is a considerable risk to your wealth health.

Make sure you know the real risks that lie ahead. I can help you navigate these. Subtle, eh?

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