Weekend reading: Be young, be foolish, be poorer than your parents

Good reads from around the Web.

Back before we argued about Brexit, we used to debate whether young people were being shafted by the oldies. Perhaps in the years since you’ve become an oldie yourself?

For my part, I read articles about middle-aged men having a mid-life crisis and desperately hope the author will have thoughtlessly jotted down an age that’s somehow a couple of years older than my own. Clearly this is evidence that I actually am having a mid-life crisis, but let’s leave that for another day…

I’m still down with the kids, of course. Not only because I still have all my hair (touchwood), I’m prone to pretentious hipster-style urban foibles (discuss), nor even because my serial monogamy has left me washed up in the Tinder-era like Charlton Heston stumbling awake in The Planet of the Apes.

No, my calling card of solidarity is I never bought a property.

That’s my own stupid fault, as I’m old enough to have done better. But as I’ve said many times, it’s almost impossible to overstate what an issue it now is for 20-somethings in the South East without sufficiently wealthy and generous parents or City salaries. I still believe many older people who long ago made the leap simply don’t understand the gulf.

I was at an office recently where the Spice Girls came on the radio, and I lamented to the room in general that I remembered being in an office just like that one when I first heard the song playing some 20 years ago. (You’ve got to love the creative industries, in case you’re wondering why there’s a jukebox in every office I’m at…)

A passing Millennial shot back that she was three-years old when the song first came out, which made us all feel so ancient we could barely retort. After a few snarky comments from the others about her inexperience at life, I reminded my peers that she’d likely have 20 years after we were cold in the ground to get that fixed.

“True,” she conceded. “But at least you had the chance to buy a house.”

What a telling comment. Can you imagine a woman in her early 20s engaging in banter based around home ownership even a decade ago?

She didn’t riff on her expansive romantic possibilities, her health and youthful looks, or her freewheeling lifestyle compared to the shackled 40-somethings shambling around her.

Not sex, drugs, and rock and roll. Property ownership.

Just a little comment, but I think a revealing one.

The numbers of the beast

The good (bad) news is we don’t have to rely on anecdotes from 60-year olds about how when they first bought a house they had to sell a kidney and eat their dinner sitting on packing crates – and that yes, the three-times salary multiple on their mortgage then for a three-bedder in a nice part of town is somehow directly comparable to your ten-times salary multiple for a bedsit – because the numbers are proving the inter-generational divide is real.

Sticking with property, an article in The Telegraph this week cites LSE research that found:

Homeowners in their 40s and above who hold on to former homes and rent them out are largely to blame for Britain’s crisis in housing affordability, an academic report has found.

Research by the London School of Economics found that older people are keeping previous homes when they move on, leading to a lack of availability at the bottom of the housing market.

…which has long seemed obvious to anyone watching the market.

I do understand why this buy-to-let phenomenon happened – and I certainly don’t think landlords are individually greedy parasites or worse, as the extreme rhetoric runs – but I do think housing is a special case asset, given that there’s a fixed supply of it and that, rounding up, everyone would like to own their bit of it.

Governments should I think therefore favour owner-occupiers over cultivating a landlord class (already numbering two million as of 2014, and owning on average 2.5 rented properties each, on top of their own homes).

Happily there’s been some movement on this since I gave my own ideas on fixing the housing market in February 2015, including higher stamp duty and a change in the rules for tax relief.

But I wonder if the new chancellor Phillip Hammond will bottle it in the face of Brexit in the upcoming Autumn statement, and reverse George Osborne’s buy-to-let tax changes? Changes that were long overdue, in my view, but that are much reviled by those affected.

Fantasy land house prices are the biggest bugbear of the under-35s, but you also hear them complain about the impossibility of saving a pension. I’ve less sympathy here, given how little research the ones I’ve talked to have done into what’s possible. But new numbers from the Institute for Fiscal Studies (IFS) suggests there is some truth to this lament, too.

Indeed The Guardian reports:

The IFS said that less than 10% of private sector employees born in the early 1980s were active members of a defined benefit scheme, compared with more than 15% of those born in the 1970s and nearly 40% of those born in the 1960s.

Recent changes have seen workers automatically enrolled into defined contribution schemes, which has meant younger cohorts have higher membership of pension schemes than their predecessors, but on less generous terms.

And adding it all up, the IFS has put figures on the gap in wealth accumulation:

People in their early 30s had average net household wealth of £27,000 from equity in their homes, the value of their pensions and other financial investments.

The thinktank said that those who were born in the early 1970s had accumulated household wealth of £53,000 by similar stage.

It added that children of the 70s were themselves notably less wealthy than those born in the early 1960s.

All somewhat depressing given our society’s presumption that we should be getting richer through the generations. With higher education fees making university unaffordable even as the triple-lock makes pensioners richer, I can’t help thinking more levers need adjusting. Brexit could be the tip of the angry iceberg, otherwise.¹

Of course, I’d happily trade my entire portfolio to be 20 again. So if you’re young and miserable reading all this, please remember you’re already rich.

The game is trying to stay that way, by building up your financial and other assets as time slowly takes its toll.

Good luck!

From the blogs

Making good use of the things that we find…

Passive investing

• Diversification versus delivering alpha – Longboard Funds
• How do ETFs work? – Vanguard
• On international exposure [US but relevant] – Wade Pfau
• The quality factor [Canadian. Just skip the ETF specifics] – Canadian Couch Potato
• In defense of bonds [Old-ish, but debate recently re-flared in our comments…] – MD

Active investing

• Five lessons from the legendary Peter Lynch – Latticework
• The US market looks expensive enough to warrant sitting out – Meb Faber
• How interest rates affect US stock market returns – A Wealth of Common Sense
• Secondary market VCTs for income – 7 Circles

Other articles

• When the best of times are the worst of times – Vanguard blog
• Invest or die – Investing Caffeine
• Interview with Jason Zweig [Podcast] – The Investor’s Field Guide
• It’s hard to sell down your capital – SexHealthMoneyDeath
• A report that shames the European pensions industry – Evidence-based Investor
• Managing finances as we get older – DIY Investor (UK)
• Earning and working are different things when you’re financially free – SLIS

Product of the week: Interest rates on savings continue to fall. ThisIsMoney reports that a Best Buy three-year bond from Principality Building Society now pays 1.44% (though the Principality site claims 1.45%) whereas to 12 months ago you could get 2.5% for such a long lock-up. Regular savings accounts – loathed by some as a faff, but still useful if you’ve small amounts of cash to sock away – are seeing rates fall, too. The Telegraph notes that M&S Bank has just cut its regular savings rate from 6% to 5%. You can still get 6% from First Direct on up to £300 a month, if you’re prepared to jump through the hoops.

Mainstream media money

Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.²

Passive investing

• ETFs are the new way to be a dumb investor – Marketwatch
• Why you shouldn’t just buy Buffett for your US exposure – MutualFunds.com
• Perhaps you shouldn’t swap your 60/40 mix for an Ivy League portfolio – Bloomberg

Active investing

• Asset managers are finally worrying about their future – Institutional Investor
• Hunt for elusive income turns to niche investments [Search result] – FT
• Robert Shiller likes UK stocks – Morningstar
• Manchester Building Society cancels interest payments on PIBS – Telegraph
• Could one of these six mid caps be the next Fever-Tree? – Telegraph
• The US heavy truck sales recession indicator is flashing – Bloomberg
• Being like Buffett: Easy to say, hard to do – Morningstar

A word from a broker

• The state of the bond market – Hargreaves Lansdown
• What impact does Presidential policy have on stock markets? – TD Direct

Other stuff worth reading

• Millions in the UK have less than £100 in savings – BBC
• £10K in equities earned £90K more than cash over three decades – ThisIsMoney
• Be wary of a very equity-heavy retirement portfolio – CityWire USA
• How to do a midlife financial health check – The Guardian
• How Vancouver is tackling its high house prices with taxes – The Guardian
• Brexit jobs exodus ‘has begun’ – ThisIsMoney
• The new global superstar companies [Special report, menu top-right] – Economist
• The economics of America’s $250,000 speech circuit – Priceonomics
• Algorithms can tell how employees are feeling – The Atlantic
• The link between carbon emissions and GDP growth may be breaking down – Quartz

Book of the week: Is it time to read J.K. Galbraith’s The Great Crash 1929 again? It’s been a while…

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1. Yes, I understand you voted for Brexit for right-minded constitutional reasons. But I don’t believe the majority of the 52% did.
2. 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”.

Offer: Head to RateSetter to earn 4% or more – and a £100 sign-up bonus – or learn more about this offer. Remember investing money with P2P lenders like RateSetter or Zopa involves more risk than with cash savings.

from Monevator http://monevator.com/be-young-be-foolish-be-poorer-than-your-parents/