Category: Analysis & comment

April 2020: A mad bounce

FIRE v London6 Comments

It’s been a much calmer month in the markets.

Of course it’s been the month that the UK’s Prime Minister went to hospital, with a “50:50” chance of making it out alive.

Lockdown has been the word on everybody’s lips. I spent the entire month working (hard! Even a bit over the long Easter weekend) from home. And, while the UK extended its lockdown from 3 weeks to 6, by the end of the month the lockdown mood music from across Europe and beyond had noticeably improved.

Markets up almost 10%

And, my, how the market’s mood had improved. The US, the S&P rose from 2462 on 1 April to 2923 on 29 April, a rise of 19%. In a month. If you had the courage to burn dry powder on US equities in late March you could have seen over 20% gains since. My (slightly leveraged) “US tech” equity subportfolio rose about 25% – led by Amazon breaking to new highs above $2400.

S&P 500, FTSE-100, AMZN over April

US equities were in fact the standout winner, up 13% in the month, while other equity markets rose 4-6%. In part, this reflects ‘big tech’ (which account for >10% of the US market). Bonds had a pretty good month too, aside from in Oz – where the currency recovered 4%.

April 2020 market & currency movements

What’s going on : is it QE?

I have been finding the market hard to fathom.

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Mar 2020: Q1 post mortem

FIRE v London3 Comments

What a brutal month. We moved from ‘crumbs, Italy’s borders are shut’ to ‘whoa, we’re all under house arrest’ in only a few days. The start of March is hard to remember.

Prime Minister Boris Johnson Announces UK Coronavirus Lockdown ...
The Prime Minister demonstrating Covid-19 to us all

I’m glad I managed to get a few days skiing done earlier in the season – now I have three overseas trips cancelled and don’t expect even to leave London for potentially months.

As lockdown loomed, I found myself shocked to be asked “are you staying in London? Or getting away?” by several people. OF COURSE I’M STAYING IN LONDON. In my Dream Home, silly. In fact some friends who had decamped to Cornwall have recently returned to London saying they really hadn’t appreciated how much better to be marooned here than there.

Market meltdown

But turning to the markets, they have had an absolute whipping this month. The fastest decline ever. And, wow, the volatility. Normally liquid ETFs had pronounced spreads, and one of my online brokers resorted to manual trading on a frequent basis. Yet, with all said and done, the damage isn’t yet quite as bad as it feels.

Having caught a cold in February, world markets developed a very nasty flu in March. All equity markets fell. And fell very rapidly. Equities were down around 18%, across the piece.

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How much is enough?

FIRE v London58 Comments

The title of this blog is that fundamental question: how much is enough? Much of the thinking around FIRE boils down to answering this question.

And as with so many good questions, the answer depends on perspective. And perspective itself depends, among other things, on height. And I think height is a useful metaphor for explaining how much is enough for me.

Ceilings vs floors

I remember my scorn about twenty years ago for my friend W, who was my most earnings-focused mate, when he told me that “I couldn’t live on a salary less than £100k”. At that point I earnt less than half that and very much saw £100k as a ceiling, not a floor.

Image result for ceilings vs floors image

In any case, these days I’m afraid I would now regard £100k p.a. as definitely a floor. And I mean £100k post tax, of actual money that I could spend. It would fund my ‘needs’: groceries, utilities, transport, medical bills, household cleaning and maintenance, and such like. It would also pay for my investment expenses, though obviously there is a ‘circular reference’ here (as the more that is ‘enough’, the higher the expenses that ‘enough’ needs to fund!).

My ‘needs’ are based on relatively low housing costs. I don’t have a mortgage on my home. I am also ignoring my house as an asset – so it is not part of the ‘enough’ calculation either.

Based on a 4% Safe Withdrawal Rate (a.k.a. the 25x rule), £100k p.a. needs a pot of £2.5m. Tax would complicate that somewhat, but assuming I remain married, and that the current allowances remain in place, I am prepared to ignore tax, for the moment. Certainly I know people earning almost £90k who have <10% tax, and I think as a couple we could make the tax at £100k p.a. relatively minimal.

Or perhaps one should think of the tax liability as roughly equivalent to the state pension/benefits which, in other respects, I am ignoring for the purposes of ‘enough’ calculations.

In actual fact, whether £2.5m turns out to be enough depends on two key questions:

  1. What return does the portfolio deliver in the long term, and
  2. In what order (or sequence) – i.e. if it alternates 15% and -5% every year, you do much better if you begin with a +15 and not a -5.
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