Wednesday, 28 November 2012

UK Average Weekly Earnings – November 2012 Update

Are you one of the 29.58 million people over the age of 16 working in the United Kingdom?  Do you feel like it’s getting harder to save or survive to payday depending on your goals in life?  Worry no longer because the answer is that it is.  If you are an average earner your salary is now back to levels last seen in September 2001.  As always on Retirement Investing Today let’s look at the data.

The Office for National Statistics reports that the Average Weekly Earnings for the Whole Economy including bonuses and allowing for seasonal adjustment is now £471.  This is nominally £2 less per week than last month and is the nominally similar to that of April 2012.  Annualised this is £24,492.  Breaking this figure down between the Public Sector and the Private Sector reveals the Public Sector to be still coming out on top by some 4%.  The Average Public Sector employee earns £488 per week (up 2.1% year on year) compared to that of the Private Sector which funds those earnings (of course in conjunction with a lot of government borrowing) at £467 (up 1.7% year on year).

Sunday, 25 November 2012

The FTSE 100 Cyclically Adjusted PE Ratio (FTSE 100 CAPE or PE10) – November 2012 Update

This is the Retirement Investing Today monthly update for the FTSE 100 Cyclically Adjusted PE (FTSE 100 CAPE).  Last month’s update can be found here.

As always before we look at the CAPE let us first look at other key FTSE 100 metrics:
  • The FTSE 100 Price is currently 5,819 which is flat against the 01 October 2012 Price of 5,820 and 7.3% above the 01 November 2011 Price of 5,422.
  • The FTSE 100 Dividend Yield is currently 3.71% which is also flat against the 01 October 2012 yield of 3.72%.
  • The FTSE 100 Price to Earnings (P/E) Ratio is currently 11.41.
  • The Price and the P/E Ratio allows us to calculate the FTSE 100 As Reported Earnings (which are the last reported year’s earnings and are made up of the sum of the latest two half years earnings) as 510.  They are down 1.0% month on month and down 7.9 year on year.  The Earnings Yield is therefore 8.8%.

Thursday, 22 November 2012

Is it really that novel, innovative and value adding a strategy?

Ok I’ll admit it.  I read the Investment Times which is a monthly publication issued by Hargreaves Lansdown.  It’s clearly a piece of marketing material aimed at keeping Hargreaves Lansdown fresh in your mind but I read it because occasionally I do find an interesting titbit that encourages me to go off and do some more research.  I’ve just received the December 2012 edition and within it there is a review of an actively managed fund called the Troy Trojan Fund.

Important: Before we get started, I must point out that what follows is not a recommendation to buy or sell anything, and is for educational purposes only. I am just an Average Joe and I am certainly not a Financial Planner.

I don’t normally comment on actively managed funds as I am a supporter of passive index funds however the Troy Trojan Fund promises a lot.  The manager “believes that sooner or later the inflationary effects of QE (Quantitative Easing) will take hold” however he also does not rule out the rule possibility of a ‘Little Ice Age’ of deflation beforehand”.  The fund manager has apparently prepared for both scenarios by building a portfolio around blue chip equities, index linked bonds, gold and cash.  The actual asset allocation is listed as:
  • 11% UK Equities
  • 20% Overseas Equities
  • 17% Cash (including UK T-Bills)
  • 7% Singapore T-Bills
  • 12% Gold
  • 6% Gold Shares
  • 13% US Index Linked Bonds
  • 14% UK Index Linked Bonds

Tuesday, 20 November 2012

A deeper look at UK Inflation - November 2012

Last week we had the Office for National Statistics (ONS) announce that annual inflation to October, according to the Retail Prices Index (RPI), increased at the rate of 3.2% and that the Consumer Price Index (CPI) increased at the rate of 2.7%  The main contributor to the CPI increase was apparently University tuition fees, food and non-alcoholic beverages.  The main contributor to the RPI increase was the same as the CPI plus the addition of housing.  The Bank of England continues with their stance (at least their public stance) that inflation will fall back to its 2% target.  They’ve now been wrong on that since December 2009, a period where in my own line of work I would have long been sacked for being so wrong.  A long run view of the UK RPI can be seen in my first chart today.

UK Retail Prices Index (RPI)
Click to enlarge

In the period January 2000 to the present day inflation has increased by 47.4%!  This means:
  • if your earnings haven’t increased by this amount and your spending is in line with the RPI you have effectively taken a pay cut over that period;
  • if you’re saving for retirement then unless your savings have increased by at least this amount you are now further from retirement than you were; and
  • if you’re retired and your pension is in income drawdown then to just maintain your purchasing power your portfolio had to increase by at least this amount just to stand still.

Saturday, 17 November 2012

The S&P 500 Cyclically Adjusted PE (aka S&P 500 or Shiller PE10 or CAPE) – November 2012 Update

This is the Retirement Investing Today monthly update for the S&P500 Cyclically Adjusted PE (S&P 500 CAPE).  Last month’s update can be found here.

As usual before we look at the CAPE let us first look at other key S&P 500 metrics:
  • The S&P 500 Price is currently 1,360 which is a fall of 5.4% on last month’s Price of 1,438 and 10.9% above this time last year’s Price of 1,226.
  • The S&P 500 Dividend Yield is currently 2.2%.
  • The S&P As Reported Earnings (using a combination of actual and estimated earnings) are currently $88.20 for an Earnings Yield of 6.5%.
  • The S&P 500 P/E Ratio is currently 15.4 which is down from last month’s 16.4.

The first chart below provides a historic view of the Real (inflation adjusted) S&P 500 Price and the S&P 500 P/E.  The second chart provides a historic view of the Real (after inflation) Earnings and Real (after inflation) Dividends for the S&P 500.

 Click to enlarge

Thursday, 15 November 2012

KISS Investing for Retirement

Alright I’ll admit it.  Investing for retirement is my hobby.  This means that I continually run all sorts of detailed analysis, some of which I share on this site, to try and squeeze a little extra investment performance from my portfolio.  An added benefit of this particular hobby is that it’s a frugal type of activity which other than the cost of running this site really costs nothing at all other than an old laptop and an internet connection.  While this is my chosen behaviour I’m also the first to admit that I could probably remove 99% of the complexity and still get 99% of the result by following the Keep It Simple Stupid, KISS (bet you thought I was talking about an American Rock Band there for a while), rule.  Today let’s take a step back and look at what that effective 1% effort might entail to enable this 99% result.

Important: Before we get started, I must point out that what follows is not a recommendation to buy or sell anything, and is for educational purposes only. I am just an Average Joe and I am certainly not a Financial Planner.

1.    Start.  If you never decide to take control of your retirement planning then you will never achieve early retirement.  Instead you’ll retire when the government tells you to which sounds a bit depressing to me.

2.    Spend less than you earn.  Sounds obvious doesn’t it?  It mustn’t be because a lot of people fall at this hurdle by being in debt.  If you don’t spend less than you earn then you are never going to reach Early Retirement or even have a little extra than the State Pension provides if you retire at State Pension Age.  This I believe is a critical point as no matter what other decisions you make about your investments it all multiplies by the level of saving you are making.  The level of saving is I believe one of the key differences between Early Retirement Extreme, Early Retirement, Typical Retirement and Late Retirement.  You can start this saving lark long before you’ve completed any of the activities below, whether it be firstly paying down debt in readiness or simply saving it in a high interest savings account until you know what you want to do with it.

Wednesday, 14 November 2012

Financial Divorce Implications at Retirement Age*

Divorce can have a significant emotional and financial impact during any stage in life, though this is often felt more acutely during retirement. The long-term impacts of a disrupted joint income need to be considered as well as the initial cost of divorce. Although the fees for a quick divorce may be relatively manageable, cases which come up against unforeseen complications can result in spiraling fees.

One member of a partnership may feel the effects of divorce during retirement more significantly if they have earned less over the years and therefore have a lower income from their pension. This may be most worrying for women, as research has shown that women in the UK are twice as likely to suffer from poverty in retirement than men. It has also been found that 70% of women face financial hardship following the death of or divorce from their husband.

Saturday, 10 November 2012

A Comparison of UK House Prices – November 2012 Update

The last time we looked at UK House Price Indices we ended up with more questions than answers.  I believe there is now a simple answer to why that was the case which I’d like to demonstrate in today’s post.  To help with this we need to first take a step away from the published Rightmove, Nationwide, Halifax, Acadametrics and Land Registry House Price Indices and instead start with an analysis of some very raw data.  This data comes courtesy of the Land Registry and is the database of actual sales in England and Wales for the month of September 2012.  It is a list of 64,173 sales.  If we plot these sales as a histogram we end up with the chart below.

Click to enlarge