This blog is designed to record the investment journey of a UK based small investor. I hope to make a modest contribution to the collective wealth of investing knowledge made freely available to ordinary people. I am the author of four books [see sidebar and books tab]
can be little doubt than many ordinary people struggle to deal with issues of
personal finance and particularly such matters as pensions and equity
investments. On the few occasions I discuss these issues with friends and relations
it seems the subject matter quickly moves on to less challenging topics.
However, just because personal finance is not widely discussed or understood,
does not mean it is not important".
opening lines to my book 'DIY Simple Investing'
In March 2014 two American economists, Annemarie
Lusardi and Olivia Mitchell published their research (pdf) on the subject of
financial literacy. They conducted a 3
question survey to see how much respondents understood interest, inflation and
Here are the questions :
Suppose you have $100 in a savings
account and the interest rate was 2% per
year. After five years, how much do you think you would have in the account if
you left the money to grow?
A. More than $102
B. Exactly $102
C. Less than $102
D. I don't know
Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, how much would you
be able to buy with the money in this account?
A. More than today
B. Exactly the same as today
C. Less than today
D. I don't know
Do you think the following statement is true or false: Buying a single company stock usually provides a
safer return than a stock mutual fund?
This was a global survey and the results revealed
a surprising level of financial illiteracy all around the world.
Only 3 out of 10 people answered all three
questions correctly in the US. In Europe, the best performing respondents were the Germans (53% got a perfect score)
and the Swiss (50%), but this still leaves almost half of each country’s
population without a basic understanding of very basic financial matters. In
countries with relatively strong economies, the numbers are sobering: 79% of
Swedes, 75% of Italians, 73% of Japanese, and 69% of French could not respond
correctly to all three questions. The score for Russia was a 96% fail rate!
Unfortunately the study does not provide results for the UK.
Whilst men outperformed women on the
finance quiz, greater numbers of women responded that they “don’t know,” a
result that held true all over the world. The upshot is that women, more
conscious of their limitations, are more likely to be interested in
This lack of
education appears to be taking a toll - half of all Americans have
nothing saved for retirement, just
one third of all adults in the U.S. have only several hundred
dollars in a savings account and
61% report that they don't have sufficient rainy day savings to cover six months' worth of essential
Does It Matter?
involves the ability to make informed decisions which are integral to our
everyday lives - how a bank account works, how to save, how a mortgage works
and how to avoid debt. People who lack the basic ability to negotiate the basic
financial landscape will be at much higher risk of falling prey to the
unscrupulous system which snares the unwary into a spiral of unsuitable
financial transactions and which result in high levels of unaffordable debt.
People with low
levels of financial literacy are likely to borrow more on credit, and tend to
pay off the minimum each month. They are unlikely to save let alone invest and
will have little or no provision by way of pension for retirement.
increasingly what we are seeing not just here but in all parts of the world. In
a study undertaken by the OECD in 2016 (pdf).
Financial knowledge is an important component of
financial literacy for individuals, to help them compare financial products and
services and make appropriate, well-informed financial decisions. A basic
knowledge of financial concepts, and the ability to apply numeracy skills in a
financial context, ensures that consumers can act autonomously to manage their
financial matters and react to news and events that may have implications for
their financial well-being. The literature indicates that higher levels of
financial knowledge are associated with positive outcomes, such as stock market
participation and planning for retirement, as well as a reduction in negative
outcomes such as debt accumulation.
Thirty countries and economies, including 17 OECD
countries, participated in this international survey of financial literacy; In
total, 51,650 adults aged 18 to 79 were interviewed using the same core
The UK came 15th overall, just ahead of Thailand
and Albania and below the average for all countries in the study.
The survey results indicate that :
The average score across all participating
countries is just 13.2 out of a possible 21 (a combination of a maximum of 7
for knowledge, 9 for behaviour and 5 for attitudes), and 13.7 across participating
OECD countries, showing significant room for improvement.
On average, just 56% of adults across
participating countries and economies achieved a score of at least five out of
seven (considered to be the minimum target score)
Fewer than one in two achieved such a score in 11
of the participating countries (South Africa, Malaysia, British Virgin Islands,
Belarus, Thailand, Albania, Russian Federation, Croatia, Jordan, United Kingdom
and Brazil). However, in stark contrast, over four out of every five (84%)
adults in Hong Kong, China achieved the minimum target score.
Across all participating countries and economies,
two in five respondents had not saved in the last 12 months.
The weakest areas of financial behaviour across
these measures appear to be related to budgeting, planning ahead, choosing
products and using independent advice.
Interestingly, relatively few people are choosing
new financial products with the aid of independent information or advice –
including best buy tables – indicating that more could be done to guide
consumers towards unbiased sources of information.
Financial resilience and long-term planning could
be further promoted through
user-friendly budgeting tools and ways of
monitoring income and expenditure which could encourage more adults to create a
household budget and use realtime data to make necessary changes before falling
People may also need education and guidance to
identify realistic alternatives to borrowing when income is insufficient to
make ends meet.
Education that applies behavioural insights, such
as encouraging people to set goals and commit to them, could also help people
to behave in more financially literate ways, including active savings behaviour
and longer-term planning.
Maybe it's not such a big problem if most of us
cannot work out the better value between a 4 pack and nine pack of loo rolls in
the supermarket. Some people who are not so good with finances will be good at
other aspects of life and can get by with a little help from their partner or
However it matters a lot if people are conned out
of life savings because they lacked a basic understanding of how the system
works, or end up borrowing more than they can afford to pay back because they cannot understand APR, or opted out of a workplace pension because some guy down the pub gave them dodgy advice.
This year, personal consumer credit lending passed £200 billion in the UK.
I have been writing this blog for close on five
years and I have written and self-published four books. I suspect that, whilst
aiming to reach a broad audience of would-be investors, in reality I am just
scratching the surface or finding a small audience of readers who are already
well versed in the dark arts of personal finance. There may well be a very
large section of the general public, probably well over 50% who cannot
understand simple personal finances and therefore cannot access the basic
information. They may never be in a position to implement a savings plan or
monitor their income and expenses let alone set up a basic DIY investment
Leave a comment below if you have any thoughts on
the state of financial literacy.
The Chancellor's credibility was severely dented
after his first budget in March when he had to backtrack on national insurance
rises for the self employed which were at odds with a manifesto pledge not to increase NIC levels.
Shortly afterwards, the PM called a snap election
which failed to deliver the increased majority and left the Government without
a majority and now relying on the DUP. Added to this is the well-documented
Tory in-fighting over Brexit which is creating a very unsettled feel at the top
Against this difficult backdrop, Hammond has to
balance the books and continue the efforts to reduce the borrowing deficit
whilst trying to counter the allure of Labour's borrow & spend strategy
which seemed to be popular at the general election, particularly with the
Our borrowing is still not under control. Net
PSBR now stands at £1.8 trillion which is almost 4x the figure for 2007
(~£500bn). Admitedly the annual deficit
has been gradually coming down year on year since 2009 when we borrowed £152bn
but the fact remains we continue to borrow each year - estimates for this year
Last month alone, the government paid £6m in debt
interest - the highest amount for a single month on record.
The more we borrow, the more we pay in interest
which is linked to inflation rates and this means less to spend on welfare and
essential public services, housing and infrastructure. At some point we have to
grasp the nettle and start to live within our means.
Unfortunately, the chancellor's scope for big
changes has been curtailed by the OBRs forecast for productivity and growth. Whilst
employment has risen
to near record levels in the UK , productivity
growth has averaged just 0.1% since
2008, compared to 2.1% in the previous decade. The OBR has revised
down its forecast for GDP growth in
2017 to 1.5%.
The OBR forecast debt
will peak at 86.5 % of GDP in 2017-18
the highest it has been in 50 years.
On Brexit, the government have set aside a further £3bn of
new money to prepare for the possibility of a 'no deal' which looks to be a
prudent provision given the way negotiations are shaping up.
On a more positive note, I am pleased to see that
pensions and savings have been left alone. The relevant changes are few :
The starting rate for savings income
that is subject to the 0% starting rate will be kept at its current level of
£5,000 for 2018-19.
After a big jump last year, the ISA
limit for 2018-19 will remain unchanged at £20,000. The annual subscription
limit for Junior ISAs and Child Trust Funds for 2018-19 will be uprated in line
with CPI to £4,260.
The lifetime allowance for pension savings will increase
in line with CPI,
rising to £1,030,000 for 2018-19.
From next April, personal allowances will
increase from £11,500 to £11,850 (up 3% in line with inflation) and HR tax allowance
up to £46,350.
As widely forecast, there was a focus on the
housing situation. There was an extra £15bn of new money bringing the total to
£44bn over the next 5 years combined with a reform of planning laws to free up
available land for more houses. The target is for 300,000 new homes per year by
the mid 2020s.
In addition stamp duty has been abolished for
first time buyers of properties up to £300,000. So, likely to push up prices - particularly in London and the SE, which will make buying a house even more unaffordable. Of course there are many other provisions in the budget - help for those on Universal Credit, an increase in the national living wage, more money for the NHS etc. but notably there is nothing on the thorny issue of funding for long-term care which became a big issue at the last election. Here's the Budget from HM Treasury in full.
The chancellor has been under pressure from many
quarters in recent months and the relationship with the PM is strained. I
suspect he has bought himself a little more time with this relatively 'safe'
budget...time will tell.
What do you make of it all? Were there any
benefits for you? Feel free to leave a comment below.
Mortgage is an actively managed, low cost investment trust, investing in a high
conviction, global portfolio of companies with the aim of maximising its total
return to its shareholders over the long term. The managers aim to achieve a
greater return than the FTSE All World Index (in sterling terms) over a five
year rolling period.
It joined my SIPP portfolio at the start of the year at my
initial purchase price of 338p. The share price has advanced 35% over the year to
currently 457p which is naturally very pleasing.
The trust has today issued results for the halfyear to end September 2017 (link via Investegate). Share price total return is
up 15.4% compared to 1% for the benchmark FTSE All-World index.
Scottish Mortgage has increased total net assets to more than
£6 bn making it one of the UK's largest investment trusts. It was promoted earlier
this year to become the only investment trust in the FTSE 100 which provided a
boost to the share price as it now has to be held by all the FTSE 100 index
The managers, James Anderson and Tom Slater run
a conviction portfolio of around 75 shares. The result is a portfolio dominated
by big holdings in some of the companies involved in the new world of social
media, the internet, healthcare, eco-friendly energy and gene therapy.
The top ten holdings account for 49% of the portfolio and
include Amazon 7.7%, Baidu 5.4% (China's equivalent of Google), Alibaba 6.8%,
Facebook 4.7%, Tesla Motors 6.8% and Alphabet (Google) 4.2%.
Some 13% of the portfolio is invested in
unquoted companies - online music provider Spotify, Dropbox, peer-to-peer
lender Funding Circle and airbnb to name a few I am familiar with.
“These are truly global businesses,
significantly impacting their large publicly-listed competitors, but as yet
they remain private companies,” said the statement.
“This makes it hard for most innovators
(professional or individual) to benefit from the capital creation of their
Amazon has become a giant in global retail. Over just 10 years it has grown more
than 25-fold from a market cap of $20bn to currently over $500bn.
Many of these network businesses now seem to have
reached a critical tipping point, whereby their sheer dominance and scale
become a reinforcing competitive advantage. This stems from the developments
within machine learning and artificial intelligence (AI). The increased level
of global connectivity, through the combination of the relatively new
infrastructure of the mobile internet, social media and smart devices, has
produced an explosion in the proliferation of data. The volume of this is now
so great that no human could hope to curate the content. It will require
machine learning and AI to process it. The leaders in these fields need access
to the best data sets, produced by the largest networks. It is no accident that
Baidu, Alphabet, and Facebook are leaders in this area.
Scottish Mortgage offers a clear, consistent and simple
proposition: a portfolio of long term investments in what the managers believe
to be the best growth businesses, operating in any industry and anywhere around
Over the past ten years, the trust has delivered
a return of 300% (second only to Linsell Train). Although this is
essentially a global growth trust, it is worth noting it has increased its dividend
every year for the past 33 years. Whereas the likes of my UK income trusts such as City of London provide a steady 4% or so natural yield, I am hoping to take my required 'income' from the sale of shares at some opportune future point. Were I to sell today, the profit from the appreciation in the share price since purchase would provide my 4% 'income' for the next 9 years.
3 Yr Chart SMT v City of London
(click to enlarge)
Obviously I am pleased with progress since my purchase and
hope to add to my initial holding when there is the inevitable pull-back down
the line but for now the current holding will return to the bottom drawer.
As ever, this article is merely a record of my
personal investment decisions and should not be regarded as an endorsement or
recommendation -always DYOR!
There have been a couple of changes to the portfolio since my
last update earlier in the year so I will take this opportunity to bring things
up to date.
Although this is demonstration portfolio, it
largely mirrors my own holdings.
Portfolio Changes As the markets have continued
hitting new highs in recent weeks, I have taken the opportunity to sell down
the two remaining individual shares. Retailer NXT has had a bumpy ride over the
past year or so, falling from a high point of £80 per share and recently down
to below £40 so a sale of 30 Next @ £51.25 and secondly a sale of 800 Legal
& General @ 273p. The net proceeds for the two holdings was £3,702 and most
of this - £3,000 - has been recycled into a new addition of AJ Bell's Passive
fund which I mentioned a while back - I settled on the moderately cautious version for the time being.
My demonstration portfolio has now been running
for almost 5 years. There have been a few more changes than I would ideally
like however some of the investment trusts have been there from the start -
City of London, Aberforth, Edinburgh etc.
The main development over the past couple of
years has been the introduction of the passive Vanguard funds and the decision
to abandon the individual higher yield shares.
The portfolio has been steadily on the rise over the
whole year to-date. So, how have the various investments fared and are my
investment trusts adding additional value compared against my Vanguard
The only investments to have lost ground in 2017
is Blackrock Commodities - currently down ~10%, however it is the smallest holding by value and also,
as it gained 69% last year, I am not too troubled. Edinburgh Trust has remained
fairly flat and I suspect has been affected by a holding in Provident Financial
which hit the buffers last month.
Leading the pack are smaller companies specialist Aberforth
with a gain of 24%, Finsbury 19% and new addition TR Property 26%. Most of the
others have reached double figures which is good.
There has therefore been a little more progress
over the year. The value of the combined portfolios at the start of 2017 was
£85,398 compared to the current value of £93,679 - a rise of £8,281 andtotal return of 9.7% year to date.
The total return for the FTSE All Share index is
Here is the combined portfolio
(click to enlarge)
There is still currently a large percentage of
cash sitting on the sidelines. Some is from recent shares sales and some from a
top slice of my Lifestrategy fund last October. One of the reasons for turning
to the addition of Capital Gearing and the recent AJ Bell funds was my concern
about the high valuation of equities. The US markets have seen the second
longest 'bull' run since 1945 and the CAPE ratio is over 30 compared to the
long term average of 16.8.
In addition, the slump in sterling post Brexit - currently
$1.32 - still makes global investments relatively less attractive so I will stay in cash
for a little while longer.
The average annualised return for this demonstration
portfolio after 4.8 years is ~8.0% p.a. - so far, so good...