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

[Loki]

4 minutes ago, feed said:

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.

I don't think age is too much of a barrier when you've got millennials going all in on GME and dogecoin

[Harley]

19 minutes ago, CVG said:

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/

You can't post it enough!  A real watershed moment for me when I found it as part of my model building some three years ago.  This is my main link: https://portfoliocharts.com/british-portfolios/  TBH, if you can't/won't take such things on board then maybe best to pay for someone else to do it.

[Harley]

46 minutes ago, Democorruptcy said:

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:

 

Or invert the calculations (sexing up with any periodic lump sums in and out or residuals and the like if you wish) and work out your required internal rate of return (i.e. required real return)!  Then match to a suitable asset portfolio to optimise risk-return.

[Talking Monkey]

5 hours ago, Harley said:

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!

Out of curiosity Harley what Asian oilies and telcos did you go for

[Harley]

13 minutes ago, feed said:

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.

That's an emerging worry for me.  I have signed lasting powers of attorney and trained up my partner but what happens when she gets it too!  I'm hoping annuities will rise with yields and I can bung a load in them.

14 minutes ago, feed said:

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. 

For me, retiring is just a change in job.  Best way I found of looking at it.

[Democorruptcy]

6 minutes ago, Harley said:

Or invert the calculations (sexing up with any periodic lump sums in and out or residuals and the like if you wish) and work out your required internal rate of return (i.e. required real return)!

Part of the problem is that your personal inflation could be a lot more than official inflation figures, as they are continually getting better at under reporting it. I dread to think how much council tax will be in 20 years. Could be hearing a lot of "It used to take me all year to earn that much when I was younger"

 

Quote

 

Local authorities in England will be permitted to increase council tax by up to 5% next year.

They will be able to put 2% on bills, plus another 3% if they provide adult social care, the government announced.

Communities Secretary Robert Jenrick said the money raised - plus extra from central government - would mean a "real-terms" funding rise.

But Labour warned of a "vast" cash shortfall, resulting in job losses, service cuts and building sell-offs.

https://www.bbc.co.uk/news/uk-politics-55354832

 

 

[Harley]

6 minutes ago, Talking Monkey said:

Out of curiosity Harley what Asian oilies and telcos did you go for

Sorry, rather not say but I only look at anything over £1bn market cap, with a minimum 3% (plus WHT) dividend (related to our portfolio rates of return discussion!), plus other financial metrics, which makes it a reasonably small pond to fish in.  Japan, HK, Australia and (not very productive atm) Singapore markets.  I don't know how far you can trust their financials (but could be said about others these days too!) but some are just so way better than say the US in terms of debt, intangibles, etc.  Problem of course is the US is the more liquid market.  And that said I have recently seen some good moves in a few mid-tier US oil plays which may be the tail end of a sector bounce or something more profound.

[TMM]

As mentioned before I’ve been following for a considerable amount of time. I love your frugal posts - living a simple life myself. 

I wondered if anyone has any thoughts/know if it would be possible to use all your tax free allowances, once you’ve maxed your ISA? I think using the the following could boost your funds considerably possibly by up to £35.3K? 

 

£2k Dividend Allowance

£12.5 Income Tax

£7.5 Rent a Room

£1k Trading Allowance (eBay selling etc)

£12.3k Capital Gains

 

Also, if you were to use the above fully, does anyone know how the £1k interest on savings up to £5k (Starting rate for savings) would work, or not work alongside these?

[Democorruptcy]

1 hour ago, Yadda yadda yadda said:

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.

Shell CEO said $10 on the oil price was worth $6bn a year to them. I was disappointed with that $6bn, thought it might be more. Particularly with $75bn debt. $30 on the oil price would be a lot nicer.

[Harley]

1 hour ago, Cattle Prod said:

No! I have a lot of work to do on this. I'm still in early forties so I'm focussed on getting cash in during prime earning years. But I want to throttle back, work part time within 2 years so I need to plan out properly. I did a course on that Excel DCF stuff but of course it went in one ear and out the other. But it didn't seem that difficult, you could probably learn it yourself in a day. My target pot is similar to the ones mentioned, I don't need much once house is paid off. I'm not too concerned about my SIPP as it has plenty of time to compound before I get my my hands on it, so my focus is on ISA/cash pot to bridge from here to then. As I'm still earning well I also have a high risk pot mostly in options, which is lots of fun, but is currently taking too much of my time. If I'm not careful I won't be earning so well any more! The ideal would be to quit corporate employment in a year or two, and then do short term contracts (up to 6mths), if the oil industry picks up again, and spend the rest of the year doing all the other things I enjoy.

I also think government is a higher risk to all this than inflation. CGT, capital controls, messing with pension ages. Wouldn't they just ever bog off?

You sound a younger me!  I used to trade warrants at work, once doubling my salary!  And that was when quite frankly I didn't have a clue on the Greeks and all the other details!  All went sour come 2008/9 when all the "take-to-the-bank relationships" broke down so I stopped it.  For me defo a case of doctor heal thyself - I was trained in all this DCF stuff but never thought about using it personally until three years ago.  Silly when you think your life isn't much different from a project like sinking a well or opening a mine or lifecycle planning a product.  For me, periodic contracts is the way to go but trouble is once your in it's hard to walk away (especially when you think about all that work, stress, etc to find the next one later on).  Still nice problem to have, and to stay at lower marginal tax rates is great.

[Harley]

18 minutes ago, Democorruptcy said:

Part of the problem is that your personal inflation could be a lot more than official inflation figures, as they are continually getting better at under reporting it. I dread to think how much council tax will be in 20 years. Could be hearing a lot of "It used to take me all year to earn that much when I was younger"

Model it!!  You can take that spreadsheet of actual expenditure that was well mentioned earlier and apply various inflation (interest) rates to each main item but then maybe, as so often is the case, it makes little overall difference in the round.  The other aspect which is key in modelling (given it's uncertainty) is to do sensitivity analysis rather than go all in with one set of parameters, and see the spread.  Like the BOE does, only better!   For example, I've assumed one scenario of a zero real rate of return, one of 1%, one of 2%, etc.  I then look at the spread to give me a form of average.  This modelling is beneficial not just to give you numbers but also to get under the covers:  recording actual expenditure made me save money, and looking at equity rates of return made me move from an income only target to a total return one (which nicely brought in the macro to the analysis).   

[CVG]

16 minutes ago, TMM said:

As mentioned before I’ve been following for a considerable amount of time. I love your frugal posts - living a simple life myself. 

I wondered if anyone has any thoughts/know if it would be possible to use all your tax free allowances, once you’ve maxed your ISA? I think using the the following could boost your funds considerably possibly by up to £35.3K? 

 

£2k Dividend Allowance

£12.5 Income Tax

£7.5 Rent a Room

£1k Trading Allowance (eBay selling etc)

£12.3k Capital Gains

 

Also, if you were to use the above fully, does anyone know how the £1k interest on savings up to £5k (Starting rate for savings) would work, or not work alongside these?

Get a wife and double them!

 

[Harley]

21 minutes ago, TMM said:

As mentioned before I’ve been following for a considerable amount of time. I love your frugal posts - living a simple life myself. 

I wondered if anyone has any thoughts/know if it would be possible to use all your tax free allowances, once you’ve maxed your ISA? I think using the the following could boost your funds considerably possibly by up to £35.3K? 

 

£2k Dividend Allowance

£12.5 Income Tax

£7.5 Rent a Room

£1k Trading Allowance (eBay selling etc)

£12.3k Capital Gains

 

Also, if you were to use the above fully, does anyone know how the £1k interest on savings up to £5k (Starting rate for savings) would work, or not work alongside these?

Up until next month's Budget maybe!

Other than that, income tax versus CGT - hence the different fund and ETF versions - distributing versus not.

Then there's possible withholding tax (overseas shares outside a tax wrapper) reclaims when/if you get that lucky!

And pension contributions of course, again for now!

[Democorruptcy]

4 minutes ago, Harley said:

Model it!!  You can take that spreadsheet of actual expenditure that was well mentioned earlier and apply various inflation (interest) rates to each main item but then maybe, as so often is the case, it makes little overall difference in the round.  The other aspect which is key in modelling (given it's uncertainty) is to do sensitivity analysis rather than go all in with one set of parameters, and see the spread.  Like the BOE does, only better!   For example, I've assumed one scenario of a zero real rate of return, one of 1%, one of 2%, etc.  I then look at the spread to give me a form of average.  This modelling is beneficial not just to give you numbers but also to get under the covers:  recording actual expenditure made me save money, and looking at equity rates of return made me move from an income only target to a total return one (which nicely brought in the macro to the analysis).   

I like to have a play with the figures.

All this FIRE talk reminded me of 'Wish I Could Afford One". Update in Jan and he's gone down under

[Harley]

4 minutes ago, Cattle Prod said:

If they link CGT to your marginal tax rate, there will be a whole lot of people dropping down tax bands. It wouldn't be worth my while working at a higher rate.

It is a worry as £12.5k personal income tax allowance plus £12k CGT allowance is plenty for me to live off.  It's just getting that £12k of gains which is the hard one!

[nomadic]

9 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 have followed this thread for years and just like to thank DB and all contributors to this highly valuable thread!

I also plan to have at least £250k retirement pot by 55 (49 now) but have a number of additional challenges. I now live in Portugal and trying to figure out all the implications of taxes here. There is no 12k personal allowance for a kick off and 28% CGT! ISAs are not recognised here and there is no equivalent.

Cost of living can be very cheap though and should help me towards my goal. I plan to buy a home for around €50k once the housing market collapses. My current monthly spend total is less than €700. I may live in a cheap motorhome for a couple of years before this as I have been nomadic for 15 years now, and love it! Have ran online businesses since 2005.

Extremely worried about the way the UK is going now as a surveillance state. There is hardly any CCTV here and no silly time limits when you park in supermarket. Life still feels free here.

Anyway, I don't want to derail this thread and hope I can add some value too. I am submerging myself financially in the classic reflation  investments of oil, gas, telecoms, mining and PMs, with an eye on big pharma and agriculture too.

Thank you again!

[Harley]

7 minutes ago, Democorruptcy said:

I like to have a play with the figures.

All this FIRE talk reminded me of 'Wish I Could Afford One". Update in Jan and he's gone down under

Great guy.  I wonder how he got the visa.

[TMM]

10 minutes ago, Harley said:

Up until next month's Budget maybe!

Other than that, income tax versus CGT - hence the different fund and ETF versions - distributing versus not.

Then there's possible withholding tax (overseas shares outside a tax wrapper) reclaims when/if you get that lucky!

And pension contributions of course, again for now!

Thanks Harley.

...goes off to google what you've said, learning all the time

[Democorruptcy]

2 minutes ago, Harley said:

Great guy.  I wonder how he got the visa.

He's worked there before, has family there and obviously has funds. 

[Harley]

2 minutes ago, nomadic said:

I have followed this thread for years and just like to thank DB and all contributors to this highly valuable thread!

I also plan to have at least £250k retirement pot by 55 (49 now) but have a number of additional challenges. I now live in Portugal and trying to figure out all the implications of taxes here. There is no 12k personal allowance for a kick off and 28% CGT! ISAs are not recognised here and there is no equivalent.

Cost of living can be very cheap though and should help me towards my goal. I plan to buy a home for around €50k once the housing market collapses. My current monthly spend total is less than €700. I may live in a cheap motorhome for a couple of years before this as I have been nomadic for 15 years now, and love it! Have ran online businesses since 2005.

Extremely worried about the way the UK is going now as a surveillance state. There is hardly any CCTV here and no silly time limits when you park in supermarket. Life still feels free here.

Anyway, I don't want to derail this thread and hope I can add some value too. I am submerging myself financially in the classic reflation  investments of oil, gas, telecoms, mining and PMs, with an eye on big pharma and agriculture too.

Thank you again!

Portugal was/is a tax planners paradise!  I always thought the city boys just liked the golf until I was told about the 10 year tax holiday which includes beneficial pension stuff.  All a bit iffy now with Brexit.  I missed the boat there as it was the top place on my list (after a visit, the last being as a kid and getting food poisoning).  Plan B is a nomad life.  Brexit and covid - you'd think they are trying to keep me here!  I've lived everywhere and while I'm a happy Brit, it was a shock coming back here and that has not changed, especially with the latest ratcheting down.  Good on you!

[Democorruptcy]

5 minutes ago, nomadic said:

I have followed this thread for years and just like to thank DB and all contributors to this highly valuable thread!

I also plan to have at least £250k retirement pot by 55 (49 now) but have a number of additional challenges. I now live in Portugal and trying to figure out all the implications of taxes here. There is no 12k personal allowance for a kick off and 28% CGT! ISAs are not recognised here and there is no equivalent.

Cost of living can be very cheap though and should help me towards my goal. I plan to buy a home for around €50k once the housing market collapses. My current monthly spend total is less than €700. I may live in a cheap motorhome for a couple of years before this as I have been nomadic for 15 years now, and love it! Have ran online businesses since 2005.

Extremely worried about the way the UK is going now as a surveillance state. There is hardly any CCTV here and no silly time limits when you park in supermarket. Life still feels free here.

Anyway, I don't want to derail this thread and hope I can add some value too. I am submerging myself financially in the classic reflation  investments of oil, gas, telecoms, mining and PMs, with an eye on big pharma and agriculture too.

Thank you again!

I was fancying Portugal but only recently realised the NHR no CGT only applied to property not shares. Do you qualify for the NHR, would it help reduce the income tax or are you already in it?

[Harley]

3 minutes ago, Democorruptcy said:

I was fancying Portugal but only recently realised the NHR no CGT only applied to property not shares. Do you qualify for the NHR, would it help reduce the income tax or are you already in it?

That news to me !  Boo!  And aren't they soon restricting the property location? 

PS: Per Napier(?) et al - maybe we'll see a US style tax on worldwide income, etc, regardless of location, if you remain a UK citizen.  I always wondered if the UK would become the Ireland of old.

[Democorruptcy]

4 minutes ago, Harley said:

That news to me !  Boo!  And aren't they soon restricting the property location? 

It wouldn't be news today if you had read a PM I sent you last month. Just sent it again.

[Harley]

1 hour ago, Cattle Prod said:

I'm still in early forties so I'm focussed on getting cash in during prime earning years.

My biggest mistake was going all out for this and not, in parallel, getting an early handle on what to do with it.  The lost gains were huge (assuming I didn't put it all in the FTSE!). 

[Starsend]

2 hours 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.

I think a lot of the FIRE stuff uses a lower draw down rate, 4% seems to ring a bell, but they work on the premise on keeping the starting capital intact if I recall correctly. I'm not bothered if my pot shrinks down over the years as long as I have a big enough margin of safety.

Yes, there are a lot of risks. Government reneging on the state pension is a biggy. In the example I illustrated you would start drawing at 55 and run out of money at 82 with no state pension kicking in at 67. The state pension makes a huge difference. Might still be ok as I think the average age of death is early eighties for a male but you have no safety margin at all. I personally don't think they'll get rid of it completely as whoever does will lose so many votes but we're likely to see a lot of change and maybe collapse between now and then so it's entirely possible. One solution is to have a good chunk of your money 'invisible' so you can claim means tested benefits if need be.

I've easily made way over 3% real returns over the years but the world is changing and perhaps it won't be so easy going forward. Risk factors here are:

1. Out of control inflation. Your own personal inflation rate is highly relevant here. This can vary drastically from person to person depending on how you live, what you spend your money on etc. This is why I've started my own inflation tracking based on personal expenditure. No other way to get accurate figures in my opinion.

2. A world without much growth where it's very hard to beat inflation. Shares have done fantastically well in my lifetime as Western economies have grown. Bonds have done well dues to interest rates going lower and lower for decades thanks partly to China exporting deflation for so long. Reckon if you've got the time to spend researching though there's always a bull market going on somewhere in the world.

3. Governments are openly planning on a world of financial repression where they'll forcibly steal slowly from savers. God knows what rules they'll bring in to fuck over savers. Biggest risk.

I'm planning on trying to build a business side-line to keep some other money rolling in - the bigger your safety margin the better and besides, got to do something with my time.

Could also rent a room if need be. Adding £400 per month into my spreadsheet makes a staggering difference.

If all that fails then my plan is to rob a bank - this is a f*cking stickup, where's the f*cking money