A few weeks ago I wrote an article on article on an Investment Policy Statement. It came to the conclusion it was a ‘must do’ thing not least because should anything happen to me, my wife would not have a clue what to do so would need some sort of professional help. An IPS gives a structure, framework and working instruction set to that process.
In making occasional notes and thoughts as I slowly pull the together on my head, I did have the notion of ‘why FIRE’ ?
Not such a daft thought. There are so many articles, blogs, posts and chat areas about the Fire ‘way’. Lots of insights offered. Lots of tips, and plenty of pretty shameless promotion for ad-hits. A number of people seem to make a living giving ra-ra ‘look at me’ advice and promotion of their book or some feed or other.
But actually, a Policy Statement is rather more than a list of investment instructions … surely. If ‘Fire’ is meant to become if not wholly, then at least in part, a way of life, then surely we need to consider a policy. After all, a policy is a course or principle of action proposed (key work is proposed … there is always wriggle room).
So really, by rights, an IPS should be a subset of an FPS as it is really about the financial control of assets.
I did a little google search and did not come up with any notes or thoughts on this. I found it quite odd. Is all personal policy really about the investment end. What about life goals ?, what about travel ?, what about going back to University ?, What about family ? There are just so many areas where the relative performance of the financial end can significantly impact the personal side of enjoying life.
We rather forget sometimes that although money gives you options, it also impacts the relationships you have. If you get to the point where you have a lot more free money than your friends or neighbours, they will notice. They will treat you differently. Its human nature. When thinking about this a very distant memory from my childhood came out. Not thought of for decades, but clearly I remembered as it had an impact.
I grew up until I was 14 in North Yorkshire (being Lancastrian, I always look back on my time as a spy … go look up the wars of the roses). Anyway, the father of one of my school friends when I was about 11 won the pools. Think ‘early lotto’ (details don’t matter). They won if memory serves about £50K. Does not sound a lot, but a decent salary then was £2-3,000. So sounds like a yield needed of 5-6%. This does sound a little rich for now, but returns in the 70’s were double digit (as was inflation at times).
Basically, after paying off their mortgage, they lived a very comfortable life but just did not work for it. I remember that over time, we saw less of them and then my friend was moved to another school. The real memories I had were that I could not imagine so much money, and that they stopped being just a regular working class family like the rest of us.
In thinking about the role of ‘policy’ perhaps it s also appropriate to consider the wider aspects of being FiRe unless we choose to move and live in a different way.
Now I do not know what should go into a Fire Policy Statement, but just perhaps some headlines might be:
- Why do I (we) want to FiRe in the first place ?
Not such a dumb question. If all we do is accumulate, save and invest, then do we really forget why ? Will we actually be able to let go and spend any ?
- What are our general goals ?
I am 54 years old.. if I live to 84 (not unreasonable), then I have 30 years of essentially non-paid work time. What do I want to achieve or do (Easy for my wife – she just loves to sew and embroider and so long as I keep the bank account charged she is happy with her lunch clubs and sewing gaggle). Me… mmmhhh .. still working that out.
- Societal Contribution
If we are not doing paid work, and have minimised (at least in part) the level of taxation we pay on investments, then how can we justify taking from society that which is funded by tax ? Really, the argument of ‘I paid my dues’ is so lame. Perhaps a place once when retirement life expectancy was 2 or 3 years’ still want services, we still want schools, hospitals, the Police, Defence etc and they have to be paid for. Now I am not saying we should volunteer taxes, but what contribution voluntarily can we make to society in balance ? (More than half my normal week is already full of voluntary things now as it turns out).
- Bucket Lists
There is a great Jack Nichlous and Morgan Freeman film called ‘the Bucket List’ – lots of growing old disgracefully and realisation that money gives no joy. We don’t have bucket lists as such (yet), but certainly things we want to do. Perhaps we need to be a bit more pro-active about it.
- Future Health and Care
The costs of care in old age especially if related to some serious physical problem or mental incapacity can be very large. Is it really fair to lump that on family or indeed on society (re- not paying taxes). My wife & I have started to consider this as we have no children and eventually will no doubt need some care. We would rather be in a position to pay for the ‘Hilton’ class of country home than a basic local council state care home !
There are those who put Inheritance into the IPS arena. I thought about this and aside from one area in the UK of donation in leu of death tax, it does not have relevance. Where we leave our assets is a choice. We plan on distribution to a lot of local charities where a few thousand makes a difference, rather than large international charities that use it for bonuses, large salaries and various dubious ‘admin’ things.
Finally, we get to the Investment Portfolio Strategy …. I have deliberately put this last as it is last. In the end, one can argue that without a successful IPS (1)-(6) can’t be funded and at a purely cash sense that is true. But a better way to look at it might be (1)-(6) just not as much.
However, the true value of life is the experiences you have, the joy you bring and the good you can do. We would rather look at the life we want to lead and see if we can make the investments work for that objective rather than have money always dictate our lives.
So, although I have made some notes on IPS thinking and plan an article later in the year as I flesh it out, I am also going to be detailing an FPS although not sure I will publish. Our personal goals are for us.
Be interesting if anyone has any thoughts on this ?