Credit deflation and the reflation cycle to come (part 2)

[MrXxxx]

28 minutes ago, Hancock said:

How much are people looking to have put by for their pension?

Im 45, once i get paid for jobs i've done i'll have £102k in shares, 20k to go in within a few weeks, and another 20k by the end of summer for jobs done.

Then i'll top it up 10-15k per annum for the next 10 years so will have dumped about £250k in there, and will leave it to mature for 5 years until i'm 60 ish, and then just live off the dividends... so i can pass it on to my daughter.

But what is a good retirement sum, £300k at todays prices, would say offer £10k-15k in divvys? Which for just me would be loads.

I'll have my own house in my name with no spunk bucket having any claims to it, so that's a potential for rental income.

Last time I looked about two years ago the Rowntree Foundation said £14k pa minimum for a basic living i.e. few treats etc.

[Harley]

10 minutes ago, Noallegiance said:

So, as the saying goes 'those guaranteed to make money in a gold rush are shovel makers', other than Caterpillar, does anyone know any listed companies that will benefit from an uptick in plant requirements for an industrial reflation?

That's one reason for stock screeners like the one on investing.com. These companies appear in several industries but "construction & agricultural machinery" is a good place to start. 

[DurhamBorn]

24 minutes ago, Hancock said:

How much are people looking to have put by for their pension?

Im 45, once i get paid for jobs i've done i'll have £102k in shares, 20k to go in within a few weeks, and another 20k by the end of summer for jobs done.

Then i'll top it up 10-15k per annum for the next 10 years so will have dumped about £250k in there, and will leave it to mature for 5 years until i'm 60 ish, and then just live off the dividends... so i can pass it on to my daughter.

But what is a good retirement sum, £300k at todays prices, would say offer £10k-15k in divvys? Which for just me would be loads.

I'll have my own house in my name with no spunk bucket having any claims to it, so that's a potential for rental income.

Its a great question,and lets face it,its probably why most of us are here in one way or another.Its a question for each person though as the variables are incredible.For myself i have a house owned outright and iv always considered £15k to £18k a year from pensions and ISAs so tax free is my perfect income to lead a simple,but very happy life with spare capacity.Given i can get £9500 from my state pension at 68 i really need about £9k max after that and im way way over that.Of course between now and 68 id need £18k from investments,again well over that.I actually need much less and tend to spend around £700 a month,but my partner pays for a lot of things as well.

I think £300k is a very good target for an individual and leaves some safety room and a couple probably £450k,or less of course if some final salary pension mixed in.

Im packing in work in  week,though i wouldnt say retiring as i might go and do a few months now and again as i like using up my £12.5k tax allowance then pack in again.

One thing i did consider was if i should work longer and help my children more financially,but they all said no,they much prefer me not working and providing childcare to my grandchildren,fixing their cars/houses,making them a nice healthy cooked tea they can call in and get after work etc and they are all on the road to being in good positions anyway.

 

[DurhamBorn]

31 minutes ago, Noallegiance said:

So, as the saying goes 'those guaranteed to make money in a gold rush are shovel makers', other than Caterpillar, does anyone know any listed companies that will benefit from an uptick in plant requirements for an industrial reflation?

Cargotec and my employer Cummins,but both are expensive now,i got some Cargotec in the March sell off and they have doubled and iv been tempted to re-allocate.

[DurhamBorn]

One of the areas i think is going under the radar,but might end up being the winner in transport is methanol.

I rarely invest in blue sky stocks,but if this floated id take a punt.

https://www.blue.world/

Its another area im going to spend much more time on and try to figure out a way to play.

Methanex is the obvious way in,and its been pulling back from its recent run.

https://www.google.co.uk/search?q=TSE:+MX&stick=H4sIAAAAAAAAAONgecRoyi3w8sc9YSmdSWtOXmNU4-IKzsgvd80rySypFJLgYoOy-KR4uLj0c_UNkrOLc7PNeBaxsocEu1op-EYAAJQ3wO5EAAAA&sa=X&ved=2ahUKEwjmuNn56c7uAhUtQRUIHSM8DGMQsRUwI3oECEEQAw&biw=1600&bih=757

ENI is also doing a lot of work on methanol and gives me another reason to own it.

https://www.eni.com/en-IT/operations/methanol-gas-co2.html

[wherebee]

1 hour ago, Hancock said:

How much are people looking to have put by for their pension?

Im 45, once i get paid for jobs i've done i'll have £102k in shares, 20k to go in within a few weeks, and another 20k by the end of summer for jobs done.

Then i'll top it up 10-15k per annum for the next 10 years so will have dumped about £250k in there, and will leave it to mature for 5 years until i'm 60 ish, and then just live off the dividends... so i can pass it on to my daughter.

But what is a good retirement sum, £300k at todays prices, would say offer £10k-15k in divvys? Which for just me would be loads.

I'll have my own house in my name with no spunk bucket having any claims to it, so that's a potential for rental income.

great question.  It's a kind of 'how long is a piece of string' question, as so much depends on where you are in the world (some countries will, I am 100% sure, start wealth taxes including pensions by the time I retire), what your family obligations are (I have kids and family scattered across the globe, so downsizing to just a bike is not feasible), and what your roof situation is (I have a mortgage free house in an area very very unlikely to get enriched before I die, so I can live rent free here for 40+ years).

Without governments fucking around with you, I'd say 15k a year is fine, which means 300k-500k of investments.  However, if the gvt is going to take 10% a year off you in additional taxes and levies, you might want to think about either having more, or having income/assets off the radar.  A silly example is a guy near me who sells herbs grown in his garden in a local monthly bring and buy boot sale.  Lots of tourists from melbourne.  He often sells out.  He probably makes an extra 3-500 bucks a month.  tax free.....

[Starsend]

2 hours ago, Hancock said:

How much are people looking to have put by for their pension?

Im 45, once i get paid for jobs i've done i'll have £102k in shares, 20k to go in within a few weeks, and another 20k by the end of summer for jobs done.

Then i'll top it up 10-15k per annum for the next 10 years so will have dumped about £250k in there, and will leave it to mature for 5 years until i'm 60 ish, and then just live off the dividends... so i can pass it on to my daughter.

But what is a good retirement sum, £300k at todays prices, would say offer £10k-15k in divvys? Which for just me would be loads.

I'll have my own house in my name with no spunk bucket having any claims to it, so that's a potential for rental income.

My target is £250k to retire at 55, although I'm kind of retired now (early fifties) but still take some work from time to time.

I'm fortunate enough to be mortgage and debt free and my kids are all grown.

I've been tracking every penny I spend for about three years in a spreadsheet which has been a very worthwhile exercise as I now know exactly what I spend and on what. It's surprising when you smooth things out over years; what you discover, for example I spend almost exactly £100 per month on food, it rarely varies more than a fiver either way. I don't include alcohol, eating out or toiletries etc in that. I average about £1100 a month, run a car and have a holiday every year. Fairly frugal in many ways but I live a good life.

I did some detailed spreadsheets a while ago to work out what sort of return rate I need to achieve and when I'll run out of money. I've based my assumptions on achieving 3% above inflation which I think is achievable for me (5 or 6% dividend stocks assuming the share price keeps up with inflation will do the trick easily but I would like a good margin of safety).

£250,000 starting point. Drawing down at £13,200 a year, state pension kicking in at 67, 3% real return on average, you will never run out of money. Once you start drawing the state pension, your remaining capital will start to increase. At 100 you will have well over £200,000. 

If you can achieve 4 or even 5% real returns then the results start to get pretty spectacular.

The dangers are:

1. Not achieving an average 3% real return.

2. Catastrophic stock market crashes early on meaning you start compounding from a much lower base.

3. Government going on the rampage.

I'm fairly confident I can achieve the 3% return. I'm sure I'll make a bit of money from time to time as well to top things up further. My biggest risk is the Government (so no change there ) In fact £200,000 would be perfectly adequate. You'd still not run out by 100 and most people are dead by 85.

I've also started keeping a simple personal inflation spreadsheet. Specific food staples, travel, household bills, diesel, MOT, tyres, mobile phone etc. All the things I actually spend money on regularly. I need reliable figures so I can see if I'm achieving the rate of return I need.

Most important thing is to get your expenditure down. Do that and it's much easier to retire earlier.

 

 

[wherebee]

So I did a bit of totting up.

60% oilies

25% miners

5% telco

5% tobacco

5% potash

That'll do me.  A bit overweight in oil but I really could not resist the lows that I think are generational.

Come on Brent!

 

[Harley]

2 hours ago, Starsend said:

My target is £250k to retire at 55, although I'm kind of retired now (early fifties) but still take some work from time to time.

I'm fortunate enough to be mortgage and debt free and my kids are all grown.

I've been tracking every penny I spend for about three years in a spreadsheet which has been a very worthwhile exercise as I now know exactly what I spend and on what. It's surprising when you smooth things out over years; what you discover, for example I spend almost exactly £100 per month on food, it rarely varies more than a fiver either way. I don't include alcohol, eating out or toiletries etc in that. I average about £1100 a month, run a car and have a holiday every year. Fairly frugal in many ways but I live a good life.

I did some detailed spreadsheets a while ago to work out what sort of return rate I need to achieve and when I'll run out of money. I've based my assumptions on achieving 3% above inflation which I think is achievable for me (5 or 6% dividend stocks assuming the share price keeps up with inflation will do the trick easily but I would like a good margin of safety).

£250,000 starting point. Drawing down at £13,200 a year, state pension kicking in at 67, 3% real return on average, you will never run out of money. Once you start drawing the state pension, your remaining capital will start to increase. At 100 you will have well over £200,000. 

If you can achieve 4 or even 5% real returns then the results start to get pretty spectacular.

The dangers are:

1. Not achieving an average 3% real return.

2. Catastrophic stock market crashes early on meaning you start compounding from a much lower base.

3. Government going on the rampage.

I'm fairly confident I can achieve the 3% return. I'm sure I'll make a bit of money from time to time as well to top things up further. My biggest risk is the Government (so no change there ) In fact £200,000 would be perfectly adequate. You'd still not run out by 100 and most people are dead by 85.

I've also started keeping a simple personal inflation spreadsheet. Specific food staples, travel, household bills, diesel, MOT, tyres, mobile phone etc. All the things I actually spend money on regularly. I need reliable figures so I can see if I'm achieving the rate of return I need.

Most important thing is to get your expenditure down. Do that and it's much easier to retire earlier.

 

 

Awesome because I had a similar approach!  First find out what you spend (which itself often saves you money!).  Then adjust for "retirement".  Then work out your required post inflation return.  Etc.  Then you know how much risk you need to take on.  It's the last bit that is key and where most eff up and take too much unecessary risk and lose precious capital, including those blindly adopting a 60:40 given the potential macro.  And if you want to be clever and aim to run out of money at a certain (dead!) age, use some clever Excel discounted cash flow formulas!

[Harley]

2 hours ago, wherebee said:

So I did a bit of totting up.

60% oilies

25% miners

5% telco

5% tobacco

5% potash

That'll do me.  A bit overweight in oil but I really could not resist the lows that I think are generational.

Come on Brent!

 

Looks good from the prevailing macro view, plus if you use heating oil!  No chemicals though, other than potash?

Just topped up some Asian oillies and telcos.  Asian trading is handy for insomniacs!

[DurhamBorn]

2 hours ago, Harley said:

Awesome because I had a similar approach!  First find out what you spend (which itself often saves you money!).  Then adjust for "retirement".  Then work out your required post inflation return.  Etc.  Then you know how much risk you need to take on.  It's the last bit that is key and where most eff up and take too much unecessary risk and lose precious capital, including those blindly adopting a 60:40 given the potential macro.  And if you want to be clever and aim to run out of money at a certain (dead!) age, use some clever Excel discounted cash flow formulas!

That 60/40 that has almost become a cult really worries me for people.Its not that there is massive risk of a wipe out,its the fact it could simply flatline for 20 years,or drift lower for a decade and then people getting whacked with 2% fees and 5% drawdown are stuffed very quickly.

[Napoleon Dynamite]

33 minutes ago, DurhamBorn said:

That 60/40 that has almost become a cult really worries me for people.Its not that there is massive risk of a wipe out,its the fact it could simply flatline for 20 years,or drift lower for a decade and then people getting whacked with 2% fees and 5% drawdown are stuffed very quickly.

They get whacked on the way in too.  I was looking into NEST pensions the other day, couldn't believe what I was reading.

Quote

 

We apply two small charges for managing your pension pot.

We take 1.8% of the money going into your pot, known as a contribution charge.
We also take 0.3% of the value of your retirement pot over the year. 

 

You're 2% down before you've even started.

[Democorruptcy]

RDSB

https://www.shell.com/investors/results-and-reporting/quarterly-results/2020/q4-2020/_jcr_content/par/toptasks_1119141760_.stream/1612367464249/a7a56513b2e96a30d6005beb242c66adb528e640/q4-2020-quarterly-press-release.pdf

[geordie_lurch]

13 minutes ago, Democorruptcy said:

RDSB

https://www.shell.com/investors/results-and-reporting/quarterly-results/2020/q4-2020/_jcr_content/par/toptasks_1119141760_.stream/1612367464249/a7a56513b2e96a30d6005beb242c66adb528e640/q4-2020-quarterly-press-release.pdf

Looks better than BP from my untrained eyes but will await others thoughts here and online.

First non paywall story I could find...

https://uk.sports.yahoo.com/news/shell-profit-drops-20-low-071804673.html

[Heart's Ease]

https://uk.sports.yahoo.com/news/royal-dutch-shell-plc-fourth-070200874.html

"The Board of Royal Dutch Shell plc (“RDS” or the “Company”) today announced an interim dividend in respect of the fourth quarter of 2020 of US$ 0.1665 per A ordinary share (“A Share”) and B ordinary share (“B Share”).

The Board expects that the first quarter 2021 interim dividend will be set at US$ 0.1735 per share, an increase of around 4% over the US dollar dividend for the fourth quarter 2020. The first quarter 2021 interim dividend is scheduled to be announced on April 29, 2021."

Bit more to add on RDS.

[Noallegiance]

9 hours ago, DurhamBorn said:

Cargotec and my employer Cummins,but both are expensive now,i got some Cargotec in the March sell off and they have doubled and iv been tempted to re-allocate.

Yeah I'm only building a list of companies I don't have in case of a bust.

[Democorruptcy]

16 minutes ago, Heart's Ease said:

https://uk.sports.yahoo.com/news/royal-dutch-shell-plc-fourth-070200874.html

"The Board of Royal Dutch Shell plc (“RDS” or the “Company”) today announced an interim dividend in respect of the fourth quarter of 2020 of US$ 0.1665 per A ordinary share (“A Share”) and B ordinary share (“B Share”).

The Board expects that the first quarter 2021 interim dividend will be set at US$ 0.1735 per share, an increase of around 4% over the US dollar dividend for the fourth quarter 2020. The first quarter 2021 interim dividend is scheduled to be announced on April 29, 2021."

Bit more to add on RDS.

Dividend is one of the sneaky headlines in the link I posted. No mention of the 0.1665 that remains the same for this quarter, just an expectation in another quarter

Quote

The Board expects that the first quarter 2021 interim dividend will be US$0.1735 per share, an increase of ~4% over the US dollar dividend for the fourth quarter 2020

Debt is another, it's gone up $1.9 billion in the quarter they are reporting, so they don't mention that and switch to the annual position instead

Quote

Net debt reduced by $4 billion to $75 billion during 2020.

Maybe one of them used to be an estate agent?

[Harley]

1 hour ago, Napoleon Dynamite said:

They get whacked on the way in too.  I was looking into NEST pensions the other day, couldn't believe what I was reading.

You're 2% down before you've even started.

That's scandalous.  A classic product of big government working with big business.  Like to see a company pension or a public sector DBS (the equivalents) get away with that.  And then the woke investment policies once you've taken the hit......!  I fear more of this in the post (or not) plandemic world.

[Democorruptcy]

7 hours ago, Starsend said:

My target is £250k to retire at 55, although I'm kind of retired now (early fifties) but still take some work from time to time.

I'm fortunate enough to be mortgage and debt free and my kids are all grown.

I've been tracking every penny I spend for about three years in a spreadsheet which has been a very worthwhile exercise as I now know exactly what I spend and on what. It's surprising when you smooth things out over years; what you discover, for example I spend almost exactly £100 per month on food, it rarely varies more than a fiver either way. I don't include alcohol, eating out or toiletries etc in that. I average about £1100 a month, run a car and have a holiday every year. Fairly frugal in many ways but I live a good life.

I did some detailed spreadsheets a while ago to work out what sort of return rate I need to achieve and when I'll run out of money. I've based my assumptions on achieving 3% above inflation which I think is achievable for me (5 or 6% dividend stocks assuming the share price keeps up with inflation will do the trick easily but I would like a good margin of safety).

£250,000 starting point. Drawing down at £13,200 a year, state pension kicking in at 67, 3% real return on average, you will never run out of money. Once you start drawing the state pension, your remaining capital will start to increase. At 100 you will have well over £200,000. 

If you can achieve 4 or even 5% real returns then the results start to get pretty spectacular.

The dangers are:

1. Not achieving an average 3% real return.

2. Catastrophic stock market crashes early on meaning you start compounding from a much lower base.

3. Government going on the rampage.

I'm fairly confident I can achieve the 3% return. I'm sure I'll make a bit of money from time to time as well to top things up further. My biggest risk is the Government (so no change there ) In fact £200,000 would be perfectly adequate. You'd still not run out by 100 and most people are dead by 85.

I've also started keeping a simple personal inflation spreadsheet. Specific food staples, travel, household bills, diesel, MOT, tyres, mobile phone etc. All the things I actually spend money on regularly. I need reliable figures so I can see if I'm achieving the rate of return I need.

Most important thing is to get your expenditure down. Do that and it's much easier to retire earlier.

I'd keep on earning a bit to top up if I were you. At first glance your £13,200/5.28% drawdown is too much from a £250,000 pot. Being in your early 50's the chances of you getting the state pension at 67 is slim to remote.

Also if inflation rises, that 3% real return might not be as easy as you think.

[Yadda yadda yadda]

21 minutes ago, Democorruptcy said:

Dividend is one of the sneaky headlines in the link I posted. No mention of the 0.1665 that remains the same for this quarter, just an expectation in another quarter

Debt is another, it's gone up $1.9 billion in the quarter they are reporting, so they don't mention that and switch to the annual position instead

Maybe one of them used to be an estate agent?

Yes, the presentation is selective and therefore dishonest. I'd rather they were up front. I'll have to try and decipher it properly later.

[Harley]

3 hours ago, DurhamBorn said:

That 60/40 that has almost become a cult really worries me for people.Its not that there is massive risk of a wipe out,its the fact it could simply flatline for 20 years,or drift lower for a decade and then people getting whacked with 2% fees and 5% drawdown are stuffed very quickly.

Raoul Pal was saying recently that bonds have been a one way bet since he started some 30 years ago with ever lowering interest rates.  Here's the chart of yields (price inversely related) on the 30YR UST.....

A one way bet indeed but seems to have changed trend in Aug20 (maybe a continuation of the Dec19 turn which was "interrupted" by the pandemic).  Just another intermediate change in trend or something more profound?

TBF, many advisors are talking about the 60:40, but probably still the same when you come to one of those lifestyle funds, robo providers, etc.  I guess it needs a consensus before you can change without being sued and that takes time, as does turning around a supertanker after a long trip.

But then who know what's in store (e.g. return of capital) and then there's portfolio theory, etc.  Something to be aware of though.

[Harley]

45 minutes ago, Democorruptcy said:

I'd keep on earning a bit to top up if I were you. At first glance your £13,200/5.28% drawdown is too much from a £250,000 pot. Being in your early 50's the chances of you getting the state pension at 67 is slim to remote.

Also if inflation rises, that 3% real return might not be as easy as you think.

A very sensible challenge. 

The thing I found with these calculations is how sensitive they are to very small changes in the underlying assumptions; post inflation returns, longevity, and residual being the main three IMO.  Post inflation returns are not just about inflation but also the (arguable, but I do) need to have an asset class balanced portfolio to cover shocks - but that costs in terms of average portfolio yield.

I would also emphasise the need to do all this first as part of a top down exercise before worrying about which stocks to buy, etc, etc.  That's the one area often overlooked in this thread in it's discussion on how to tackle the macro.  Macro to potash, etc with relatively little in between!  Asset allocation has often proven to be the more important factor (although what they are or should be, and how they work together, may need updating).

And IMO this is not something to only do towards retirement.  It's a model valid for all phases where you can tweak the risk-reward depending how far you are from having to draw down funds.  You can even include lump sum payments (e.g. child uni costs) in the model if you have the Excel DCF knowledge.  I assume @Cattle Prod and the finance guys (especially the project accountants) are all over this kind of thing.

A good authorised financial advisor would be useful, but finding one may be a challenge.  Not quite the same but another shout out for the free (to over 50's) Pension Wise service.

For me, I need £10m to retire but progressively less each year and if lucky I'll die early and save a ton!

[CVG]

18 minutes ago, Harley said:

A very sensible challenge. 

The thing I found with these calculations is how sensitive they are to very small changes in the underlying assumptions; post inflation returns, longevity, and residual being the main three IMO.  Post inflation returns are not just about inflation but also the (arguable, but I do) need to have an asset class balanced portfolio to cover shocks - but that costs in terms of average portfolio yield.

I would also emphasis the need to do all this first as part of a top down exercise before worrying about which stocks to buy, etc, etc.  That's the one area often overlooked in this thread in it's discussion on how to tackle the macro.  Macro to potash, etc with relatively little in between!  Asset allocation has often proven to be the more important factor (although what they are or should be, and how they work together, may need updating).

And IMO this is not something to only do towards retirement.  It's a model valid for all phases where you can tweak the risk-reward depending how far you are from having to draw down funds.  You can even include lump sum payments (e.g. child uni costs) in the model if you have the Excel DCF knowledge.  I assume @Cattle Prod and the finance guys (especially the project accountants) are all over this kind of thing.

A good authorised financial advisor would be all over this, but finding one may be a challenge.  Not quite the same but another shout out for the free (to over 50's) Pension Wise service.

For me, I need £10m to retire but progressively less each year and if lucky I'll die early and save a ton!

Likewise, by operating a 'safer' more balanced portfolio I forgo a lot of the returns that others can make but arguably can sleep sounder in my bed.

I know that I post the same link every few months but it's worth repeating for the newcomers to the thread. This guy's portfolio site is a treasure trove of information including safe historical withdrawal amounts.

https://portfoliocharts.com/commentary-all/page/2/

[Democorruptcy]

16 minutes ago, Harley said:

A very sensible challenge. 

The thing I found with these calculations is how sensitive they are to very small changes in the underlying assumptions; post inflation returns, longevity, and residual being the main three IMO.  Post inflation returns are not just about inflation but also the (arguable, but I do) need to have an asset class balanced portfolio to cover shocks - but that costs in terms of average portfolio yield.

But I would emphasis from all this is the need to do all this first as part of a top down exercise before worrying about which stocks to buy, etc, etc.  That's the one area often overlooked in this thread in it's discussion on how to tackle the macro.  Macro to potash, etc with relatively little in between!  Asset allocation has often proven to be the more important factor (although what they are or should be, and how they work together, may need updating).

And IMO this is not something to only do towards retirement.  It's a model valid for all phases where you can tweak the risk-reward depending how far you are from having to take funds.  You can even include lump sum payments (e.g. child uni costs) in the model if you have the Excel DCF knowledge.  I assume @Cattle Prod and the finance guys (especially the project accountants) are all over this kind of thing.

For me, I need £10m to retire but progressively less each year and if lucky I'll die early and save a ton!

The current inflation target is supposed to be 2%. If you use that and 5% income to make 3% real return @Starsendpot and drawdown is no problem at all. However if returns (tax free) only match inflation, it lasts about 20 years:

 

[feed]

Also need to consider that managing a portfolio in your 50’s or 60’s is one thing, 70’s another.  Any physical or neurological decline and you could have a real problem at those figures.

But, then there is retiring and retiring.  I’m about 18months from FIRE and walking anyway from the PAYE. But I’ll still keep my side hustles as long as I’m able and earn under the tax threshold.  I'll still consider myself retired.