Why have I started to Scribble ?
Really all started almost 3 years ago when I read about SIPPs (Self Invest Personal Pension). Possibly (and depending on your view point) the best thing George Osborne did as Chancellor. The pensions industry has for decades held a strangle hold on retirement funding and been allowed to charge enormous fees for doing little more than a bit of random guesswork. (As I found when I started to simulate large portfolio holdings and just randomly picking them … a future article).
The basic premise of a SIPP is a platform provider hosts the cash and the individual can pick what they invest in within that platform. Multiple SIPP’s can be held to cater for the different platform biases, but basically, they all charge a fee (mostly) based on total holding and transaction charges. Some have evolved to provide model portfolios but really they are just as mired in the old world heavy cost bias and so far seem limited in being worth it. The exception (again arguably) is Vanguard who have been enormously successful in the USA by charging very low fees and giving a high degree of transparency. Fees, as another article idea I have, is one of the biggest factors in long term return there is.
Anyway, I started transferring some of my several individual pension funds (all stakeholder or older equivalent), and started ‘playing’ with small amounts. Interestingly I learned a lot about scale and the cost drag of small holdings. NOTE: no defined pensions transferred and anyone thinking of doing so needs proper financial advice .. caveat emptor
I stumbled a bit and lost some money (a few thousand) and then was successful in some others so overall about balanced. I did see that had I left the money where it was originally it would have grown more. Very depressing, but again, lesson lesson lesson … investing is a long game and education has a price. The piper will be paid one way or another. I did however realise I may cock up and so ‘gambled’ small amounts. I say ‘gambled’ because however informed I felt I was, I have subsequently realised I really was not looking at holdings right.
At this time I was about 52 years and I thoroughly expected to work into my 60’s but hoped not to have to work to state pension age (for me 67). So in the end, I decided that whatever was to grow mid term needed to be rather more new than existing technology. More confident in this space after a lifetime as an engineer, so banking, insurance, medical, farming etc I really knew little about
At the time, I worked in the automotive industry and although I personally was not working on electrification, I did start to take an interest. This led me to look at UK energy generation and what I saw was rather horrifying. Anyone thinking mass electrification in the UK for cars is happening fast is in for a shock – there just is not the generation capacity and worse the distribution network to get it to vehicles in their millions. It is even worse in many overseas countries. Ultimately this led me to look at storage as a must have technology and one that must be a rapid growth area. Finally I stumbled on to a battery system called VFRB (Vanadium Redox Reflow Battery) … more on this a lot later.
Suffice to say I found the technology area I wanted to invest in … around +600% on my investment so far and only just getting going. I started small and ended up very heavily invested in a limited basket .. more on that and why it is OK (sometimes) another time. It does lead me to look at divestment strategies, timeframes and longer term financial goals I never thought possible.
So what are my personal goals ?
At this time I was about 52 years old and I did think I would have to work (and by that I mean paid work) perhaps to 64 or 65 and my wife earlier to 57/58 as her parents were getting on.
So the goal was really no more that getting to that age if not earlier with a decent fund sum enough to provide a modest retirement income mortgage paid off. What most definitely was not the case was that I had any idea what we would need, or indeed what size of funds would be needed to generate it in anything other than a crude sense. For example, annuity rates of about 2% index linked or 2.5-3% were available fixed. Not hard to do some maths. If I needed (say) 20K then a fund of £1M was needed … wow !! How could this be correct ?
And this is where a bit of basic maths demonstrates how bad annuity returns are. I would have had to live to almost 100 years old just to get my money back, let alone any growth in it. For the many things Osborne did not do right, breaking open pension funds to allow an individual to take some charge was not one of those.
Why have I put financial stuff in my personal goals ? Because that was how I felt…… then I discovered the FIRE way of thinking: Financial Independence Retire Early. This is not the same thing as stopping work as I was to discover and rather changed my thinking as a result.
Interestingly, when I first started to look at this, I did rather feel that personal and financial goals were pretty much the same. Not so. One of the things about FIRE is that it ask the question ‘how much do you really need ?’ This is not as intuitive or as easy to formulate as it sounds …. another idea for a doodle later.
Suffice to say my financial goals have been shown the door and replaced with rather more ambitious ones now LTA limits are likely to be breeched. Money is not the answer to woes, but it sure can make for an easier ride. Also, along the road this last year I discovered that care costs for us both should they be needed must be factored in. We don’t have children and no really close relatives. It all gets spent on us, good causes and whatever is left to various charities. But care costs especially with an element of medical care can easily be knocking on £100K right now. So as part of looking to how long funds must be maintained I now need to factor in a level of a few years extensive care .. just in case. Oh boy … the funds needed are getting larger and larger !. The issues around care opens up the really terrible social situation the ‘west’ particularly is in – decades of expansion, consumption, reduced family size and migration. The long term care needs will not on the whole be provided by families as they either don’t exist or are too spread geographically. Its a social timebomb – not something we much fancy… so more planning and investment care needed.