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

Sunday, 28 October 2012

UK House Value vs UK House Affordability – October 2012

This is the monthly UK House Affordability update which is the metric that I believe is the key driver of UK House Prices.  It is also the update for UK House Value which is the metric I am using to assess when it is time to buy a UK home. 

Let’s first update the key data being used to calculate both UK House Value and UK House Affordability:
  • UK Nominal House Prices.  In recent posts we have been comparing the different UK House Price Indices however for now we will stay with using the Nationwide Historical House Price dataset for this topic.  September 2012 house prices were reported as £163,964.  Month on month that is a fall of £765 (0.5%).  Year on year sees a decrease of £2,292 (-1.4%).
  • UK Real House Prices.  If we account for the devaluation of the £ through inflation (the Retail Prices Index) we see a very different story.  Month on month that £765 decrease turns into a decrease of £1,761 (-1.1%) and year on year that £2,292 decrease grows to £6,880 (-4.2%).  In real terms prices are now back to those around March 2003. 
  • UK Nominal Earnings.  I choose to use the Office for National Statistics (ONS) Average Weekly Earnings KAB9 dataset which is the seasonally adjusted average weekly earnings of both the public and private sector including bonuses.  August 2012 sees earnings rise to £473.  Month on month that is an increase of £2.  Year on year the increase is £10 (2.2%).  With inflation (the Retail Prices Index) running at 2.9% over the same yearly period purchasing power of those that work continues to be eroded.
  • UK Mortgage Rates.  The proxy I use to monitor mortgage interest rates is the Bank of England dataset IUMTLMV which is the monthly interest rate of UK resident banks and building societies sterling Standard Variable Rate (SVR) mortgage to households (not seasonally adjusted).  September 2012 sees this reach 4.28% which month on month is a tiny uptick of 0.01% and year on year is an increase of 0.18%.  So while the Bank of England holds the Bank Rate at 0.5% out in the real world we are seeing mortgages creeping up very slowly. 

Wednesday, 24 October 2012

The ASX 200 Cyclically Adjusted PE (aka ASX 200 PE10 or ASX200 CAPE) – October 2012 Update

This is the Retirement Investing Today monthly update for the Australian ASX 200 Cyclically Adjusted PE (ASX 200 CAPE).  The last update can be found here.

Before we run the analysis we need to discuss an anomaly with the dataset that has been built over many years.  The dataset is calculated using data published by the Reserve Bank of Australia.  I show a screen grab of this data below.  Reading this table I have always assumed that the columns “Dividend yield per cent per annum” and “Price/Earnings ratio” referred to the ASX200.  It turns out that this was a bad assumption and this month I have noticed some small print that highlights that these two columns actually refer to the MSCI Australia Index with all other columns being the ASX200.  This to me is just bizarre but if we want to continue with this dataset it looks like I am going to have to think outside the box as I’ve tried searching for new data that details the P/E and Dividend Yield of the ASX200 and not surprisingly drawn a blank.

 Click to enlarge