The Greek drama

Will they or won't they crash out of the Eurozone? The FTSE 100 is down nearly 5% with the worry in recent days / weeks - is that signalling they think the Greeks aren't worth that much, or that they believe the IMF and Eurogroup preserve the status quo?

Certainly the latter if you subscribe to this theory:  The predictability of wealthy white people

Or maybe not if those hard liners have their way.

The next question is whether now is a good time to chuck some of my accumulated cash into the market?

Assuming the recent falls have been entirely due to Greece alone, and an eleventh hour deal solves the issue once and for all, an assumed 5% spring back in market indices isn't really that brilliant a return to put my cash at risk now with so much uncertainty.

When I buy shares directly, I buy one at a time for hopefully the right reasons. Given this situation, with shares being hit across the board, I would be more tempted to buy an index tracker to benefit from a cheaper valuation across a more diversified base, but it's not quite enticing enough at the moment, so I'll leave it for now*.

But what about the #FOMO? Well, if there is a big rebound following a deal then all my other investments will spring back too and I'll feel richer anyway and would be happy in that!

*As always, the decision to invest or not lies with you and you should always do your own homework and come to your own conclusions. I am not a financial advisor and the above should not be taken as advice or in any way other than my own opinion and musings on the state of the world!

Savings rates, compounding and cash

I’m not great at maths. A lot of FIRE bloggers seem to be in engineering or finance so presumably it comes easy to them. Unfortunately that doesn’t apply to me, I just don’t see it naturally and have to learn the hard way, so when I saw a post the other day it stuck with me and I wanted to re-iterate the point for if/when someone might actually ready this blog other than me!

Sadly I now can’t find it again to credit the author* as it’s a nice simple piece which, for me, hits on two main FIRE issues.

Firstly, savings rate. Size matters here and I'm doing okay, but the issue I had was the transition from saver to investor. Most of my savings are set to leave my account each month automatically, well done me. I'm then left with my discretionary cash until the next pay day. Following the FIRE mantra, the plan is to spend as little as possible (without being rude) and invest the rest, thus bumping my savings rate to heroic levels and earning the laurels month on month.

This moves us on to the second issue - investing it. When you read the likes of TEA, MMM or Monevator they are coolly confident when investing, with a clear route to market lying open for them. I know that time in the market is better than timing the market, but still, no one likes to see the capital value fall.

So this building bank balance leaves me feeling shameful! I might have well just spent it! My little Sterling platoon ready and waiting to earn more recruits to the cause and speed me along to my goal, locked and loaded and ready for a mission... but actually just lying idle in the barracks.

Then I saw this post. What is comes down to is this, simply by increasing your savings rate you’re giving yourself out-performance. Ta-dah!

The post assumed two people, Bob, who saves £5k pa into an account that guarantees 10% pa – pretty sweet returns there Bob, and Bill, who is terribly risk averse and only saves the cash into an account that earns no interest. Just going on the simple maths and ignoring inflation and the like, but compounding £5k per annum at 10% takes fourteen years to reach parity with Bill’s savings total, which I thought was pretty astonishing, fourteen years.

This made me feel a whole lot better. The main focus remains increasing the savings rate as a whole, cutting the unnecessary purchases but importantly not worrying so much where the savings are. Those boys will get deployed at some point, maybe just not yet, but that's not the end of the world!

*I'll carry on looking for it and edit it in later.

The Plan

Okay, the last post was a bit wordy and theoretical… this one should be a bit shorter.

So, like all good plans the financial one should be simple enough that you could explain it to a child , so, metaphorical crayon in hand, here goes:

• Emergency fund

1. The first line of offence. Offence because if things at work got really bad I could tell the boss to do one and head off into the sunset like a hero. The knees would be knocking a little, but with 6 months of savings for mortgage and everyday expenses in cash the immediate F-you pot is in good shape. 

• Pensions

1. Personal: I pay in a little each month into a personal pension. I’ve been doing this for a fair few years and that lovely law of compounding is starting to kick in a little.
2. Company: My company is good enough to double what I put into the external stakeholder pension. I put in 5% they put in 10%, pre income tax, tax efficient, building up at quite a rate.

• ISA’s

1. I pay into a stocks and shares ISA and try to make the most of it, I don’t always rarely succeed but it’s chugging along nicely and managed by an advisor. He keeps an eye on the costs, and I keep an eye on him and try to apply my limited knowledge, but at the end of the day he’s a professional and is better at it than me so I think the trade-off is worth it at the moment.

• Active share investing

1. The money I save per month, once all other expenses and savings are taken care of is swept into a separate account for me to prove just how clever / stupid I am. That said I try and buy solid dividend paying companies at c5% yields to compensate for my lack of knowledge and ability in this area rather than think I can spot the next Facebook or Amazon.

The end, that’s it. Pensions and ISA contributions are automatically taken from my account a few days after payday, active share investing is fun on the side, but is getting up to a level which requires proper thought and could provide a small regular income per month to support the F-you pot if needed. 

P.S. To cover it off alternatives such as wine, art, gold, buy to lets – nil. I heard a good pod-cast about financial planning a while ago where the main thrust was do the easy, most tax efficient stuff first and then get stuck into more tricky / risky things like buy-to-lets later, which makes sense to me.

I do like the idea of buy-to-lets and the ability to juice your returns by adding leverage, but all the inherent issues remain – management fees, letting fees, repairs and replacements and the odd recession and, at the moment, I like seeing my dividend paying shares dropping cash into my account on a regular basis, nice and clean, minimum of fuss.