Hello and welcome back to Mortgage Advisor on FIRE. This week I report on a horrible week for the stock market. Also, a change of plan for the next BTL purchase. I take a look at some basic investing rules, and how someone should start their investment journey. First, the Quote of the Week:
Quote of the Week
Another week and another comedy performance from the Tory government. This time, it was Nadine Dorries, the UK Culture Secretary, who was in front of a select committee and she did not understand how Channel 4 was funded. The station is publicly owned, yes, but it receives funding through its advertising and commercial operations. For the Culture Secretary, the person who runs the organisation that owns Channel 4, to not understand how it is funded is embarrassing. In any sane, competent government this would be the most embarrassing incident for the month, and possibly for the year. This is the Tory government led by Boris Johnson though.
Earlier in the week our Prime Minister, Boris Johnson, made a speech at the CBI conference in which he;
- Referenced Peppa Pig; a children’s TV show about a pig.
- Made “vroom vroom” noises when talking about Tesla cars.
- Compared himself to Moses, coming down from the mountain with the Ten Commandments.
Fuck me, I wish I was making this up. I need to go get some painkillers and a coffee.
Right, I’m back.
If we had anything resembling competent opposition, then this government would be taken apart. We don’t though. The whole political landscape here is a mess.
I only had to work Monday to Wednesday this week. A combination of some fortunate scheduling and careful use of holiday time means I will be off from Thursday just gone, until Thursday this coming week. I’ve timed this to coincide with the release of two books I’ve been impatiently looking forward to. The first is Mind Bullet by Jeremy Robinson. This year I’ve smashed through many of his books, and I’m now friends with the author on Facebook. He’s a cool guy and we have some fun back and forth. His books are great and can be read standalone or, if you have a keen eye for detail, you can spot all the links in the shared world he is creating. I’ve completed one of his shared universes which is based around kaiju and the attempts to stop them. This is known as the Nemesis Timeline. For the last couple of years, Jeremy has been creating the Infinite Timeline and I can’t stress how much I’ve enjoyed it so far. The image below shows the structure of the timeline, which I’ve used with permission from Jeremy:
Also this week I’ve been told I definitely need surgery for my kidney stone. This is due to take place on Friday 10th December. It’s possible, or rather probable, that my blog that week will be a limited affair.
In addition to all this I’ve been talking plans through with my investment partner, and we’ve decided to change our approach slightly. He is looking for somewhere to buy following the sale of his home that he shared with his wife, whom he is going through a divorce with. As I’m younger than my investment partner, I suggested buying somewhere for him to rent from me. He’s agreed and that’s the approach we will look to take. This will provide a further investment property for me, with a tenant I trust completely. As we are related it would not be a straight forward BTL purchase, and will almost certainly need to be a second home loan. However, once he leaves that property I will be able to remortgage the property to a simple BTL.
The week finished with some frustration. The new Covid variant has hammered the stock market, and in the financial update later in this blog you will see the impact it’s had on my investments. Speaking of Covid, I had my booster vaccine on Friday. No side effects a day later, but some of them can take a few days to present. Still, it’s better than having Covid.
A Brief Interlude
I’ll never hide this blog behind a paywall, but it does cost money to run the site. I spend a minimum of six hours each week writing the blog, and maintaining the other parts of davidscothern.com. It is a labour of love. However, many of you have asked how you can show your appreciation. I set up a Buy Me A Coffee page but the main feedback was that you couldn’t pay by card. Well, now you can! My page now supports card payments and Apple Pay. So, if you want to show your support and appreciation for the content I create, please buy me a coffee.
2021 Goals – to be achieved by 31/12/2021
1 – Reduce weight to 92.8kg. (Current weight 123.2kg).
2 – Finish 104 new books. (Current total: 108).
I’m still smashing through books and it’s going to be interesting to see what number I finish on. I’ve just finished Mind Bullet, as mentioned earlier, and need a new book to start. The thing about books is that it can be very difficult to choose. Films and TV shows have trailers, books have a cover and some blurb. For audiobooks, I tend to gravitate to certain authors and narrators. I’ve been enjoying my science fiction stories recently, but all the books I see out there now, are seemingly war stories in a science fiction setting. I want more “real science”, or stories that are based on a foundation of science, such as the Lady Astronaut series, or The Expanse, Seveneves, and so on. Any recommendations would be appreciated.
Premium Bonds: £19,400.00 (no change from last update).
Stocks and Shares ISA: £41,602.13 (down £2,089.37 from last update).
Fuck It Fund: £2,200.00 (up £100.00 from last update).
Crypto: £797.54 (down £63.88 from last update).
Pensions: £51,578.67 (down £573.17 from last update).
Residential Property Value: £210,058.00 (no change from last update).
Buy-to-Let Property Value: £135,550.00 (no change from last update).
Total Assets: £461,186.34 (down £2,626.42 from last update).
Credit Card: £456.16 (up £349.95 from last update).
Residential Mortgage: £167,164.52 (no change from last update).
Buy-to-Let Mortgage: £93,000.74 (no change from last update).
Total Debts: £260,621.42 (up £349.95 from last update).
Total Wealth: £200,564.92 (down £2,976.37 from last update).
Investment Income in 2021: £3,450.39 (target £5,000).
One of the most severe losses I’ve seen in a single week since starting this blog. It’s not an actual loss unless I cash in the investments, though. The only impact is to my ego, so not that important overall. The last few weeks of the year are probably not going to see much in the way of gains. The stock market will bounce back fairly quickly, I think. My credit card will probably take some more abuse before 2022. With just one more wage due before the end of the year, it’s unlikely that I’ll be able to add much to my investments.
We received notice that our tenant wants to leave, and they will vacate the property mid-December. It’s come at a good time, to be honest. We were in the process of switching letting agent due to the extreme level of incompetence demonstrated by our current agent. Now that the property will be empty, it makes the transfer much easier and simpler. We will have the chance to do some minor bits to the house, like fresh painting and a deep clean. I suspect the garden will need someone in to bring it up to scratch. Then, we can remarket with our new agent. From what we’ve been told we should be able to market the property for 10% more than what it was previously let for.
We have also suspended our search for a second BTL, as I mentioned earlier. Instead, we will look for a property for my investment partner to live in. This will be a purchase between my girlfriend and I, and everyone will benefit from the arrangement. My investment partner will benefit from cheap rent, and my girlfriend and I will benefit from a further property.
How to Start Investing
The most common type of question I see on financial forums relates to getting started investing. Investing and financial management are not explained in school, so people tend to learn about money from their parents. If someone’s parents are broke, then it’s highly likely their children will also struggle financially. To start investing you don’t need to know complex financial concepts. You don’t have to know anything about different financial instruments. The first step is to get a handle on your own finances, and to understand where your money is spent. In order to invest, you need your income to be greater than your expenditure. Some people advise you to make a list of all your commitments, and then base a budget around this figure. I think this is poor advice, as it’s not going to produce a reliable snapshot of actual spending. The only way to get accurate information is to go over old bank and credit card statements. Three months worth should be enough, and this will show you a more accurate picture of spending, rather than the idealised version you tell yourself.
If your income is greater than your outgoings, then you need to check what debts you have. Can these be paid off? Do they have high rates of interest? Some debts need to be paid off as soon as possible. Some debts can be allowed to endure for years, such as mortgages with a low rate of interest. Once you have a better understanding of what your net financial situation is each week, or month, you can then start to save and invest.
There is no magic bullet to investing and building wealth. It takes time. It takes research. It takes a lot of patience. What investing does not need to be is complex or mysterious. In my opinion, the steps to financial management are:
- Work out your net financial position each month by looking at past spending.
- Prioritise your debts.
- Use excess funds to pay off most urgent or expensive debts.
- Once you have cleared the most pressing debts, you can use your money to start building a reserve fund. This fund should provide enough money to cover the basic cost of living for several months.
- Once the previous steps are all complete, you can then start learning about more interesting types of investment, such as property, stocks, funds and so on.
The key point is that investing needs to be built on a solid foundation of minimal debt, good financial education and a patient approach to the process. Once money is invested, it should be left alone unless there are unusual circumstances at play.
Obtaining a good financial education can be difficult because there are a lot of bad financial communicators out there. Also, for UK investors it can be frustrating when many books on investing or FIRE are written from a US perspective. Some lessons are universal, such as to spend less than you earn. Others, not so much. I’ve never had a 401k, but to a US citizen, these are a huge deal.
One final rule from me; if you don’t understand an investment, do not put money into it. You should be able to correctly explain the nature of the investment to someone in basic terms. If you cannot do this, you don’t understand the investment. If you don’t understand an investment, you are just gambling.
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Finally, have a look at Darren Scothern’s fantastic blog at darrenscothern.com.