Weekend reading: It’s not perfect, but historical data is the best we have to go on when investing

What caught my eye this week.

Writing a regular personal finance and investing blog isn’t all glamour, acclaim, and partying with insouciant French models, you know.

Sometimes it can even be a tad dispiriting.

You, dear reader, can come across a comment like…

• “I don’t see the point in bonds – I decided not to buy any when I started investing 18 months ago and I haven’t looked back!”

or…

• “Stop trying to pump up FED-inflated shares even higher I bought shares in 1999 and they crashed in 2000 and I lost everything IT WILL HAPPEN AGAIN.”

or…

• “Index funds are for losers. I got my Amazon shares in 2005 when I didn’t know what I was doing and then forgot I owned them and now I’m rich.”

…and you can shrug and be glad you decided not to invest with that particular active fund manager.

(Ha ha. Little joke there, active fund manager friends.)

But as someone who has been writing a blog about this stuff for ten years – well over 1,000 articles in total – it’s hard not to take such silliness personally. Especially when it’s written in the comments of your own website.

It’s understandable that investors in the 1930s, the 1950s or even the 1980s might base their beliefs about investing on personal experience.

Up until the 1990s you had to hunt to find good books about investing.

As for accessing data to reach your own conclusions and devise the right plan – you had to be rich already to buy that data in the first place!

Nowadays though we’re drowning in solid investing advice. Obviously lots of rubbish, too, but there’s so much good stuff being written it’s almost excessive. Filling this page with links every week takes a while, but it’s never for a lack of decent material.

Resources like the wonderful Portfolio Charts has brought data to the masses, too.

So why do some people persist with hokey homemade theories based on just a few years’ personal experience?

Presumably it’s evolutionary. There is good reason to believe what you’ve seen before with your own eyes when another caveman tells you to go cuddle a sabre-toothed tiger.

But as Michael Batnick pointed out in his Irrelevant Investor blog this week, your personal experiences and mine may differ wildly – and when it comes to investing both may be inadequate when it comes to the big picture.

Look at how various cohorts of investors fared with the S&P 500 over the first ten years of their investing life:

Those are extremely different outcomes. As Batnick notes:

Consider an investor who started in 1946 (black) versus one who started in 1966 (light blue).

The former got the chance to invest in a market that compounded at 16.7% while the latter saw stocks compound at just 3.3% while being ravaged by two bear markets.

Now you and I might look at that graph and conclude luck plays a huge role over the short-term in investing.

Some ambitious folk might even believe the graph demonstrates that you need to pay attention to levels of market valuation or momentum when deciding how much to allocate to shares – though I wouldn’t recommend it for most.

But what one should clearly avoid doing is concluding “shares are the only place to be” because you happened to get going in 1946 or “when I hear the phrase ‘stocks for the long run’ I reach for my revolver” because you started investing 20 years later.

True, we can never be sure the future will look like the past.

But it must be better to be aware of a hundred years of ups and downs than to believe investing started the day you opened your broker account.

From Monevator

Asset allocation starts with defining your investment goals – Monevator

From the archive-ator: Bitcoin is a bubble. Probably – Monevator

News

Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!¹

UK property market is weakest for six years, says RICS – Guardian

Record number of markets have negative total return (in USD) in worst year since 1901  [by that measure] – Bloomberg

UK economy grows at fastest rate since late 2016 – BBC

5.8m Britons excluded from mainstream finance [Search result] – FT

The firms that have switched to a four-day week – Guardian

Chinese headmaster fired over secret crypto-mining operation at school – BBC

43-year old presidential hopeful offering $1,000 a month to all Americans – CNBC

Real wages picking up, fastest growth in nominal wages for ten years – Deloitte

Products and services

Interactive Investor scraps exit fees for all customers – Moneywise

Government announces probate fees hike – Money Saving Expert

Is rent cheaper in the next street? [Interactive map] – BBC

Ratesetter will pay you £100 [and me a bonus] if you invest £1,000 with it for a year – Ratesetter

Would you spend £50 a month, Netflix-style, to go on three weekend holiday breaks a year? – ThisIsMoney

Comment and opinion

Things you see during every market correction – A Wealth of Common Sense

The magic – and danger – of compound interest – Moneywise

What is early retirement like? – Young FI Guy

When things get wild – Morgan Housel

Busting the myths of investment: Do equities outperform bonds? [Search result] – FT

Tracking alpha’s shrinkage [Why ever fewer funds beat the market] – ETF.com

Merryn Somerset Webb: Life begins at 60 [Search result] – FT

You are never done being you – Abnormal Returns

The power of passive [On market/industry structures] – CFA Institute

Inflation, not recession, is the big risk for investors – Forager

You are what your record says you are – Epsilon Theory

Investing in venture capital [I’m writing a series on this, too!] – Value and Opportunity

‘Bonds with a twist’ sends worrying message on risk – The Value Perspective

For stock pickers: Selling Victrex after a rapid turnaround – UK Value Investor

Buffett’s underrated investment attribute – Base Hit Investing

The odd factors: Profitability & Investment [For investing nerds] – Factor Research

Brexit

Brexit is teaching Britain its true place in the world [Search result] – FT

Pound skeptics turn believers as divorce deal looks near – Bloomberg

Cabinet Office investigates leak of Brexit PR plan it claimed was “not genuine” – Andrew Adonis via Twitter

Kindle book bargains

The Spider Network: The Wild Story of a Maths Genius and One of the Greatest Scams in Financial History by David Enrich – £1.99 on Kindle

Tiny Budget Cooking: Saving Money Never Tasted So Good by Limahl Asmall – £1.09 on Kindle

The Strategist: Be the Leader Your Business Needs by Cynthia Montgomery – £0.99 on Kindle

A Street Cat Named Bob: How One Man and his Cat Found Hope on the Streets by James Bowen – £0.99 on Kindle

Off our beat

David Attenborough has betrayed the living world he loves… – Guardian

…though on a happier note, the global fertility rate is collapsing – BBC

Britain’s renewable energy capacity overtakes fossil fuels – Reuters

Why the robot apocalypse might not be intentional – Schroders

Trump calls CNN reporter ‘the enemy of the people’ [Video] – Reuters via Twitter

In China, Bill Gates encourages the world to build a better toilet – New York Times

Four forum posts about software that changed the word – Chris Dixon

And finally…

“It’s a huge positive step forward if you can embrace the fact that you don’t have the edge to beat the markets. It will make you a better investor and leave you wealthier in the long run while spending less time worrying about your investments.”
Lars Kroijer, Investing Demystified

Like these links? Subscribe to get them every Friday!

1. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.

from Monevator http://monevator.com/weekend-reading-its-not-perfect-but-historical-data-is-the-best-we-have-to-go-on-when-investing/

Martin Lewis: How much should you save for your kids to go to university? (VIDEO)

This is a warning for parents of all teenagers. Now over 50% of our young people go on to university. And while you commonly hear that you don’t need to pay for that upfront, it’s no longer true, there is a hidden parental contribution

from Martin Lewis' Blog https://blog.moneysavingexpert.com/2018/11/how-much-should-you-save-for-your-kids-to-go-to-university-/

5 Tips To Take Your Small Business Global

If you’re taking your small business across borders, you’ll need to know how to handle a range of new challenges…

The opportunities presented by the international business landscape are available to players of every shape and size. With that in mind, there’s no reason not to consider the prospect of taking your small business global: modern technology, transport, and communication infrastructures mean that you’ll be able to reach markets of millions of new customers… so long as you’re also prepared to tackle an array of new challenges.

Small businesses don’t have the same margin for error as their enterprise counterparts so, if you’re preparing to expand your global footprint – or even just thinking about it – check out this list of the 5 most important expansion tips, before you make the leap…

Search for support

As a small business owner, it’s unlikely you’re planning to dive into an international expansion blind – but beyond conducting thorough market research, it’s also well worth exploring the public and private support and incentives available to your for the specific purpose of global growth. Government authorities or NGOs are a great place to start, but there are options at every level: the International Trade Association and The World Bank, amongst many others, offer resources in the form of advice and financial initiatives perfect for small businesses lining up an international growth project.

Build a mobility plan

Taking a business across borders almost always involves developing some sort of global mobility plan to handle employees’ administrative, professional, and personal needs. Your global mobility plan needs to be comprehensive, incorporating everything from the immigration administration process, to tax and payroll issues, and residential needs. Depending on the size of your deployment, and the scope of your mobility plan, it may be worth hiring a global mobility manager in a dedicated role.

Prioritize IT compliance

It should be no surprise that your expansion will involve adapting to a significantly different compliance environment. Beyond ensuring employees are trained in local laws and legislation, your compliance efforts must also include your IT infrastructure. Practically, you’ll need to offer your employees IT compliance training tailored to your target location, and conduct a thorough software audit and upgrade.

Understand the culture

Your business won’t just have to adapt to a new legal landscape, but to its cultural surroundings. This means understanding both the business and social culture of your expansion location, including work hours, statutory holidays, and religious practices. Your employees may need to be offered cultural training in order to adapt to their environments – language training may be an especially useful option.

Be ready to scale

Plan for the long term – and be ready to scale your business for growth in its new location. The easiest way to scale in an unfamiliar territory is to engage an outsource organisation to handle business-critical processes like payroll and HR. Outsourcing represents not only pre-packaged procedural efficiency and compliance expertise, but is a way to develop a tailored solution to your business’ unique global needs.

 

 

 

from Finance Girl http://www.financegirl.co.uk/5-tips-to-take-your-small-business-global/

Asset allocation: It’s meaningless unless you’ve defined your investment goals

You can’t make any worthwhile decisions about asset allocation without knowing why you are investing in the first place.

What do you want to achieve? What, in a nutshell, are your investment goals?

Asset allocation is the art (not the science) of putting together a portfolio of investable assets that gives you the best shot of meeting your goals.

The blend of assets you require will be determined by the magnitude of your investment goals and the answers to two further key questions:

• How much risk do you need to take? If you sit tight in low risk, low growth assets, the big danger is that you never reach your goal. Equally, if you’ve already amassed enough wealth to meet your needs, then why keep dicing with Mr Market? As passive investing guru William Bernstein puts it: “If you’ve already won the game, there’s no need to continue playing.”

• How much risk you can handle? If your goals require you to take big chances with risky assets but you have the financial stomach of a cowardly lion, you’re liable to bite off more stress than you can chew.

Pinning down your personal risk tolerance is extremely difficult – you won’t really know how much you can handle until you’ve experienced a damn good shoeing in the market. That’s why many people use rules of thumb to guide their asset allocation.

However, you can estimate the risk dosage you need to take by chunking down your investment goal into its component parts.

Owning the goal

Common investment goals are retiring early (or just retiring at all), paying off the mortgage, sending the kids to university, building a rocket ship to reach Alpha Centauri, and so on.

It’s also normal to start investing on the vague notion that you’d rather like to be rich(er).

Normal but dangerous.

The problem with a fuzzy goal is that it’s all too easy to abandon. There is no yardstick of success to keep you on track, and the plan can quickly be forgotten when disillusionment pays a visit.

Defining your plan with a few numbers helps to set it in concrete. It enables you to rationally assess the significance of the setbacks you meet along the way. And it creates a strong anchor point to cling to when the going gets tough, as it inevitably will.

Breaking down your investment goal

The key components of any investing goal are:

• Vision – For example, “I want to retire at 55.”

• Target – What is the number in pounds and pence that you need to achieve?

• Time horizon – How many years can you take to hit the target?

• Contribution level – How much can you invest? This may be a lump sum or a regular amount, such as £250 a month.

• Expected rate of return – What growth rate do you need for your contribution to mushroom into your magic number, given your time frame? You’ll need to come up with a credible expected return for your portfolio – and come to terms with the fact that expected returns are not guaranteed.

The good news is the vision is no more than a sentence. The numbers, too, are much easier to estimate than they first appear.

It’s also important to appreciate that – like planets exerting gravitational pull – the components of your investment goal directly influence each other.

When reality intrudes

You can use these relationships to try to solve any problems with your plan.

Can’t hit your target number within the time you’ve got left to invest? Then accept that you must reduce that target, or increase your contribution rate.

Can’t reduce your target figure or increase your contribution rate? Then maybe increasing your time horizon will square the circle.

Another solution is to increase your expected return, but you must beware of straying into the realm of fairy tales. If you want to be the master of your own destiny then you should only tweak the components you can control.

Doing your homework

The relationships between the moving parts of your investment goal become blindingly obvious when you use a financial calculator to help you work out the numbers.

Playing with the components of your investment goals is a valuable exercise as it enables you to:

• See how realistic your goals are and how much you’ll need to save to achieve them.

• Estimate how much growth you need over how long a period. (The less growth you need, the less risk you need to take. The less risk you can handle, the longer you’ll need to invest – or the more you’ll need to invest to hit a given target).

• Use that data and knowledge of asset class characteristics to tailor an asset allocation that takes into account your own need and ability to handle risk.

The process of defining an investment goal and adjusting it to suit your financial reality best slots into place when you work through a practical example.

To that end, we’ve previously shown you how to do that for retirement – the most difficult investing challenge most people will face. Go have a look!

Take it steady,

The Accumulator

from Monevator http://monevator.com/asset-allocation-investment-goals/

The Best Buy To Let Areas In Manchester

Thinking of investing in a buy to let property within Manchester? From high rental yields to a growing population, Manchester is steadily growing as a UK hotspot for property investment. Whether you want to invest in modern city centre apartments or suburban homes, Manchester is filled with plenty of opportunities for buy-to-let investors to get stuck into. If you’re getting ready to take the plunge into investing in property in Manchester, make sure you find out more about some of the best buy-to-let areas in the city.

Manchester City Centre

Popular with professionals working in the city, the city centre is one of the best places if you’re looking to invest into apartments and studio apartments. With more and more students and young professionals moving to the city, and an increasing demand for more quality, luxury apartments, now is the perfect time to invest in buy to let property within Manchester city centre. Property investment companies like RW Invest are developing properties based in the city centre from £112,500 with a 9% net yield guarantee for two years.

Salford

Salford is an area with plenty of potential for growth, with a convenient location close to the city centre. The home of MediaCity, Salford is a great area for buy-to-let, attracting professionals who want a high-quality apartment that’s close to their workplace, but also near enough to the city centre. Home to Salford University, the area is also popular with students, meaning more opportunity to invest in student properties which are known for their high rental yields. Due to the sheer volume of students choosing to study in Manchester each year, student properties are always in demand, making this a solid investment.

Tameside

Located the opposite side of Manchester from Salford, Tameside is based to the East of the city, with a rapidly rising population. According to the 2011 census, the population of Tameside stood at 219,324 — a 2.9% increase compared to ten years before. The average price for a 2 bedroom house in the Tameside areas ranges from as low as £71,095 in Ashton, to as high as £103,939.90 in Hyde. With a variety of well-priced properties, great transport links, a growing community and a good choice of schools, shopping and amenities, Tameside makes a wise choice for investors looking to Manchester for their next venture.

Droylsden

Out in the Manchester suburbs you’ll find Droylsden, an area with a host of shops, bars, restaurants and excellent transport links. Over 2018, prices of properties in Droylsden have seen a massive surge, increasing by more than £4,000. Pair this with a high demand for property and approximate rental yields of 7%, and it’s likely that investing in a property within this Manchester area could make you an attractive profit in a short amount of time.

Wythenshawe

Located in South Manchester, Wythenshawe is an area with a good combination of schools, housing stock and transport links, making it a stable place to invest in. Wythenshawe is seeing increasing demand, likely part due to the extension of a Metro link to the area, therefore now is the perfect time to invest in property in this part of the city.

from Finance Girl http://www.financegirl.co.uk/the-best-buy-to-let-areas-in-manchester/

Things To Consider Before Investing In Student Buy To Let

Thinking of investing in student buy-to-let property? You’re not alone. The student market is worth £46 billion to the UK economy, is only expected to grow further by the end of 2018, and is home to four of the top 10 universities in the world. Student property investment offers high rental returns, the potential for long term tenants, and growing demand, but before diving into your first student buy-to-let investment, there are a few things you should think about first. Take a look at three things to consider before investing in a student property.

The Location

The area that you choose to invest in makes a big difference when it comes to student property. Certain areas in the UK have a higher population of students than others, which ultimately means more demand for student properties. Northern cities like Liverpool and Manchester are becoming more popular for student property investment due to an increasing student population along with more affordable prices, both for the student and the investor.

Cities like Liverpool and Manchester offer everything a student wants. Bustling nightlife, world-class universities, great transport links, affordable living costs, good shopping and amenities and a wide choice of housing options is the hallmark of a great university city to invest in. The closer the property you choose to invest in is also a major factor, as most students would rather be in walking distance of their University campus, while also being close to friends and nightlife.

The Target Audience

If you’re investing in student property, your target audience is going to be limited to students. While you might feel a bit restricted by this, there are lots of different types of student you can cater for in terms of investment, all with varying results. If you’re catering to students with a lower income, investing in shared housing may be your best bet, whereas properties such as luxury apartments are more prominent with more wealthy students.

This type of modern, fully furnished apartments are becoming more and more popular in recent years, with the changing views and attitudes of students who value their privacy and want a higher standard of living. Luxury student property is also common with international students, for which the UK has seen a big influx of in the last couple of years, with 450,000 international students heading to the UK in 2016/17. Chinese students are among the most popular type of international student, which is good news for property investors who are worried about tenants leaving the city during term times.

The Cost

Budget is always something to think about when making an investment and should definitely be considered before investing in property. The area you choose for student property is the difference between a pricey investment or a more affordable venture. Whilst cities like London are popular with students and home to several world-class universities, property prices are much lower up North. The average price for a house in London in 2017 was £671,412 — a far cry from the £158,299 you can expect to spend on average in Liverpool. Property development companies like RW Invest offer student property in the North West from as low as £45,450 with an 8% net rental return.

from Finance Girl http://www.financegirl.co.uk/things-to-consider-before-investing-in-student-buy-to-let/

Weekend reading: Budget 2018

What caught my eye this week.

One way to tell when someone is bluffing is when they rabbit on and on. I got that sense watching Philip Hammond’s Budget on Monday.

Oh, I don’t think he was being deceitful as such – although he did do the standard Chancellor sleight-of-hand trick by not revealing a National Insurance hike (see below) while boasting he was cutting taxes.

I also recognise his need to pepper his speech with dad jokes. Nobody wants to be known as Spreadsheet Phil, and Hammond has spent all his Budgets trying to shake that off that putdown with his Open Mic for MP gags.

But as the speech ticked past the hour mark, I sensed he really was making something out of nothing.

Rarely has so much been said by one chancellor for so little consequence to the status quo for the many, or the few.

Perhaps he was trying to bore MPs into backing a Brexit deal so they wouldn’t have to sit through an emergency Budget in March?

At least he didn’t tamper with pensions or ISAs.

• Summary of Budget 2018: Key points at-a-glance – BBC

• Are you a Budget winner or loser? Do the maths! [Calculator] – via Investors Chronicle

• More Budget-in-brief coverage – ThisIsMoney / Guardian / BBC

• Sneaky National Insurance hike may take back some of your tax cut gains – ThisIsMoney

Was there anything in the Budget small print that caught your eye?

From Monevator

The reader discussion following our recent annuity post is a must-read – Monevator

From the archive-ator: Passive investing when the stock market crashes – Monevator

News

Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!¹

Northern England house prices to rise at faster rate than London – Guardian

See how these ‘penny pinchers’ retired in their 30s [Video, feat. MMM] – PBS

Parents to get child benefit fine refunds as HMRC makes shock U-turn – Your Money

‘Red October’ wrongfoots bets on market bull run [Search result] – FT

Are you rich and what do you get compared to the tax you pay in? – ThisIsMoney

Products and services

Nutmeg is rolling out a phone-based advice service – CityWire

Monzo has introduced savings pots that pay… wait for it… interest! – Monzo

Leeds BS’ 0.99% discount mortgage is cheapest since BOE rate hike – ThisIsMoney

Ratesetter will pay you £100 [and me a bonus] if you invest £1,000 with it for a year – Ratesetter

NS&I got a boost this year, but there could be cuts to come – ThisIsMoney

What’s inside Vanguard’s new ESG ETFs? [US products, but they may come our way] – Morningstar

How market destruction gave birth to the ETF [Podcast, multi-part series] – Bloomberg

Comment and opinion

No one is crazy – Morgan Housel

Where the risk lies in a balanced portfolio – A Wealth of Common Sense

The upside of market corrections – UK Value Investor

Cash holders need a new drug – Abnormal Returns

The surprising power of the long game – Farnham Street

How to debate finance without being a jerk – Bloomberg

Get rich by being British – The Escape Artist

The 18-year property cycle – My Deliberate Life

Boutique fund managers are the best bet to try to beat the market – Institutional Investor

For active stock pickers: Making sense of the market mayhem – Musings on Markets

The biggest rallies come in bear markets – All Star Charts

Dear first-time angel investor – Roy Bahat

After 10 years, Bitcoin has changed everything… and nothing – Wired

Brexit

No deal Brexit could see interest rates rise [or fall] – ThisIsMoney

On news that David ‘Oops I Did A Brexit’ Cameron is mulling a return to politics – HuffPo

George Osborne has also confessed to regrets about the EU Referendum – BBC

Kindle book bargains

Anything to Declare?: The Searching Tales of an HM Customs Officer by Jon Frost – £0.99 on Kindle

Tiny Budget Cooking: Saving Money Never Tasted So Good by Limahl Asmall – £1.09 on Kindle

The Strategist: Be the Leader Your Business Needs by Cynthia Montgomery – £0.99 on Kindle

Off our beat

Humanity has wiped out 60% of animal populations since 1970 – Guardian

Cock Unsure: Some men are resorting to penis fillers to boost their self-esteem – BBC

What it’s like to listen to cricket on the radio for the first time – Young Vulgarian

Waitrose editor resigns after making a private joke. Book burning can’t be far away now – BBC

Empathetic budgies yawn when they see their peers do the same – New Scientist

A surfeit of lampreys: First evidence of stomach-turning medieval delicacy found in London – MOLA

Have you tried ambient literature? – Refinery 29

And finally…

“The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil.”
– John Kenneth Galbraith, The Great Crash of 1929

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1. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.

from Monevator http://monevator.com/weekend-reading-budget-2018/