Looking Back: Part 21

Originally published March 22nd, 2020.

Introduction

Hello and welcome back to Mortgage Advisor on FIRE.  There’s a lot to discuss this week. I will talk a little about conspiracy theories and why they are dangerous, and then move on to my financial response to the Coronacrisis.  

Coronacrisis? How did this term not end up in mainstream use?

Weekly Update

It’s been my first week back in work following my return from India.  I’m so relieved that I made it back to the UK, as had I been any later there is a very real chance I would still be stuck abroad.  It must be so frustrating for all those who are trapped away from their homes at the moment. I know my girlfriend is feeling the distance from her family.  

It was only a few days after we returned that the UK shut down. It would have been less than ideal to be trapped outside the UK during a global pandemic.

In terms of distance, the importance of social distancing at this time cannot be overstated.  It should not even be that difficult in an age of video calling and social media. It’s annoying that so many people have not heeded advice until now, purely thinking of themselves instead of thinking how they may be the carrier that passes the virus on to other, more vulnerable, people.  Tragically, people will die because of this thoughtlessness. One of the best pieces of advice I saw was to act as if you were already infected. If you were already infected you avoid contact with other people and become a hermit for a couple of weeks, or at least I hope you would.

It still frustrates me when I think about how many people just ignored basic guidance re: social distancing, mask-wearing, and handwashing. It almost certainly will have contributed to avoidable deaths.

Conspiracy Theories

“IT’S ALL A PLOY TO GET US MASS VACCINATED!”

Erm… ok?

I keep seeing people posting things like this on social media, claiming that the coronavirus is all a ploy to get us mass vaccinated.  The thing I’m not clear on, and after questioning the people posting this, I don’t think they are clear on it either, is what we are supposed to be getting vaccinated against and also, why.  

“Why?” is a question that shuts down most crackpot theories.  Another conspiracy theory I’ve come across is that this is all a hoax to force society to self-isolate.  I ask again, why? What would be the point? What would be achieved?

“Why?” is a great question for this sort of bullshit.

The government wants to use vaccines to implant trackers in our bodies.

Why?

They want to track us.

Why?

Because they want to know about how habits, who we see, what we spend on, that sort of thing.

Ok, two points; first, they can already do that. Second, why?

Another way to shut down these theories is to ask people for their sources.  Most of these conspiracy theories come from unverified sources lacking general credibility, and this is just a polite way of saying “some dude off Facebook.”

Conspiracy theories can be fun.  There are several theories which I’ve gone down the rabbit hole with, including the 9/11 theories, the sinking of the Titanic, the Phantom Time hypothesis, and even Flat Earth theories.  The thing is, for me, it is entertainment and a way to sharpen my critical thinking skills. There is a host of research in the psychological literature that shows if you believe in one conspiracy theory, you are more likely to believe in other conspiracy theories. 

For the most part, it’s pretty harmless to society. If you choose to believe the Moon landings were faked, or that the Earth is flat you aren’t really harming anyone, with the exception you might be socially isolating yourself (although Flat Earth has a large community now).  There are some conspiracy theories, though, which can be extremely harmful to the extent they can cause death.

Anti-vaxxers are fucking idiots.  Let’s just get this out of the way first.  There is not a shred of credible, peer-reviewed, evidence that links vaccines to things like autism.  Every single argument from anti-vaxxers can be deconstructed quite easily by the medical establishment.  Vaccines are safe, and they save lives every day.  

A few days ago, someone I know shared a status on Facebook which was one of the typical “things were better back in the day” posts.  It described how their parents used to use the same knife and chopping board to cut fresh chicken and then butter bread, and then stated how their packed lunch for school was not kept cool.  It also described how they were not given antibiotics and sterilisation kits for bee stings (I think it’s rare that a bee sting gets infected, but I digress). Anyway, it was one of those posts that got my back up a bit because on the face of it, it’s pretty inoffensive but when you drill down it has the potential to be dangerous.  

Survivorship bias should be taught in schools from an early age. So much bullshit in society could be avoided if people had a better understanding of this concept.

Of course, the only people talking about living through all these unsafe practices will be the ones who survived, because had they not survived they would not be here to talk about it.

Let’s take a trip back in time.  According to the ONS, Infant (aged under 1 year) mortality has dropped from 9.4 to 3.9 per 1,000 live births over the last three decades.  Life expectancy has also improved substantially in the last few decades, as per the charts below from the ONS. 

There is a survival bias when people look back at the past.  People can look back now and say “Well, I survived so cross-contamination from food preparation was not dangerous” or “I survived playing in the dirt” and so on.  The thing is, of course, you survived because you’re here to say it. What about all those that did not survive?  

So, coming back to my point a couple of paragraphs ago.  Why are statements on Facebook, promoting the unhygienic past, dangerous?  It’s because it subtly promotes a return to that way of life. If just one parent decides to make their child’s cheese sandwich with the same equipment they prepared raw chicken, there is an increased risk that the child will die at an early age.  The same principle applies to those who do not vaccinate their children.  

How does this relate to the coronavirus conspiracy theories?  Well, if people are posting BS theories that are not backed up by credible evidence, it runs the risk of convincing other, uninformed, people to disregard government and medical advice.  If people do not practice social distancing then we are in this for a longer period. For most people, the virus will be an inconvenience, but if you are one of those people disregarding medical advice you risk passing the virus on to the elderly or those with compromised immune systems such as cancer patients.

Throughout the pandemic, I lost count of how many times I had this argument with people. Just because you felt fine, and just because you were not worried about the virus, it did not mean you couldn’t transmit it to someone vulnerable. The infection chain might be several people long, but eventually, it would reach someone with a weakened immune system. The entitlement of some people was astounding.

Another thing to remember, if you think the actions by the government are heavy-handed, is that it’s easier to scale back an overreaction than it is to ramp up an underreaction.  These measures might be extreme, but I have little sympathy when we have to explain how you should wash your hands in the year 2020. I wash my hands regularly and thoroughly, and I’ve had people comment on it before.  The thing is, for the last twenty years or so I have always washed my hands according to NHS guidelines. I see people come out of bathroom stalls and then just flick their hands briefly under a tap. This is not washing your hands.

I remember one whiny little asshole I temporarily lived with several years ago who thought that dipping his hands into a sink of water, where dishes were soaking, was the same as washing his hands. This is what happens when you have a mother with room temperature IQ, and you have much in common with a bungalow; you both have nothing upstairs.

Now that I have vented, let’s move on to the financial update. 

Financial Update

Premium Bonds: £15,000 (up £1,275 from last update). Target Met.

Stocks and Shares ISA: £6,353.84 (down £725.71 from last update).

F**k It Fund:£1,879.51 (up £265 from last update). 

Property Value: £181,626 (no change from last update).  

Total Assets: £204,859.35 (up £814.29 from last update). 

Credit Card Debt: £1,732.14 (down £27.80 from last update).

Loan Debt: £2,906.84 (down £29.38 from last update). 

Residential Mortgage: £133,673.84 (no change from last update). 

Total Debts: £138,312.82 (down £57.18 from last update). 

Total Wealth Figure: £66,546.53 (up £871.47 from last update). 

The ISA is continuing to take a pasting, but I’m not worried.  This is a good thing for long-term, regular investors as it means we get more from pound-cost-averaging, which I will come back to shortly.  I have now hit my target of £15,000 in Premium Bonds, which was going to be used for a BTL deposit. However, those plans are on hold. I’ve spoken with my business partner and we’ve agreed to hold our plans until there is more clarity about the impact of Covid-19 on the property market.

Financial Comment

In my last post, I argued for the need for flexibility when investing.  I have also promoted the concept of process goals over outcome goals, as I believe if you stick to a general process (i.e. regularly investing and continual financial education) you will achieve financial independence.  I still believe that and I have small outcome goals that help direct the path my process goals will take me on, such as raising enough money to pay my half of a BTL deposit. The outcomes are just signposts though, that I’m on the right path.  

With Coronavirus spreading as it is, many people are finding themselves in uncertain financial times.  There are many resources out there to help if you are struggling with debt or budgeting.

Resources

StepChange
URL: https://www.stepchange.org/contact-us.aspx

National Debtline
URL: https://www.nationaldebtline.org/

Citizens Advice
URL: https://www.citizensadvice.org.uk/

Money Advice Service
URL: https://www.moneyadviceservice.org.uk/en

Do not suffer alone if you are struggling.  If you are in financial difficulties, please contact one of the above organisations for help and advice.  If you are going to struggle to meet your mortgage payments, please contact your lender as soon as possible.  In the first instance, use their website. I know some lenders are offering payment holidays you can apply for over their website.  This will help reduce the strain on those working in the offices who are dealing with long queues of calls. If you do apply for a payment holiday, please make sure you understand the implications of this before agreeing to it.  

Support for Mental Health

Although the Coronavirus is primarily a physical issue, the impact it will have on the mental health of the nation should not be underestimated.  Although we are to remain socially distant, it does not mean we should be emotionally distant. Talk to those around you. Be kind. If we continue to be there for each other emotionally we may end up saving lives.  

If you are struggling with your mental health, please reach out to your friends and family, or one of the organisations listed on the NHS link here:

https://www.nhs.uk/conditions/stress-anxiety-depression/mental-health-helplines/

I have seen more than a few BTL portfolio landlords, and Rent-to-Rent landlords state they are struggling as their tenants are unable to pay rent having lost their jobs due to the Coronavirus.  In response, I made a point, which caused some controversy; if you are in financial difficulty because your tenants have missed one payment, then you have overstretched yourself and are guilty of the same lack of contingency planning you accuse your tenants of. 

I see many landlords who operate under the mindset of “more, more, more” and will leverage to the maximum degree to obtain as many properties as possible. I hope this will be a wake-up call that more isn’t always better. One thing I have discussed in depth with my business partner is the need for a significant contingency fund should anything go wrong with our first BTL.  I would not be able to sleep at night if I did not have at least six months of funds behind me.

I saw something on social media recently that summarised this point nicely; “portfolio size is vanity, equity is sanity”. Having twenty houses leveraged to 90% LTV is not as sensible as having ten houses at 50% LTV.

Pound Cost Averaging

A few weeks ago I explained this concept, and I think now is a good time to revisit it.  The stock market is taking an absolute hammering at the moment with many shares tanking. There are some signs that the collapse may have bottomed out, but it’s my personal view that stocks could fall even further.  We are only in the first few weeks of the Coronavirus impacting business in the UK, and Europe as a whole. As more businesses close their doors and more people lose their jobs, I suspect we may see more than one high-profile casualty in the stock market as well as significant further falls across the board.  

The basic concept of pound-cost-averaging is that you spread your investment in stocks out over time.  The frequency isn’t all that important, you could spread the investment out weekly, monthly, quarterly etc but remember that trading fees can impact the overall cost of each stock.  I invest monthly as it matches the frequency of my salary.  

An Example

An Example (trading fees and taxes ignored for simplicity)

Month 1: You invest £1,000 in a stock priced at £20 per unit.  You purchase 50 units.  

Month 2: You invest £1,000 in the same stock which is now priced at £17 per unit.  You purchase 58 units and have £14 left over.

Month 3: You invest £1,014 in the same stock which is now priced at £18.50.  You purchase 54 units. You have £15 left over.

Month 4: You invest £1,015 in the same stock which is now priced at £22.  You purchase 46 units. You have £3 left over.  

In total, you have purchased 208 units at a cost of approximately £4,000.  The average (mean) cost of each unit of stock was £19.23. This is pound-cost-averaging.  

If you had instead saved your £4,000 and invested in month 4 in one lump sum, your £4,000 would have purchased just 181 units.  

This can go the other way, where you end up with fewer units by spreading your investing over several months. My view now, years removed from this original post, is that I’d rather get money invested ASAP so that it has more time in the market to grow.

As the quote goes; “It’s not timing the market, but time in the market that counts.”

Changing Focus

Now that I’ve saved my deposit for the first BTL, I’m going to switch my focus to investing aggressively in the stock market.  Although I invest heavily in index funds, I also have a small selection of individual stocks that I invest in. I believe in the long-term future of these stocks and some of them have lost 50% of their value since the start of the Coronacrisis.  There are bargains to be had. Even if you look at index funds only, the Vanguard FTSE100 Index Fund has lost approx 25% of its value in the last month. It may drop further, but I firmly believe it will bounce back in time. The Vanguard Global Bond Index has remained fairly static throughout the last month, but in the past week or so it has started to drop by a much smaller amount than the stock market.  

As I stated before, I firmly believe this is a great time to invest in the stock market as long as you have done your research.  If you invest without research, you are just gambling.  

Final Notes

The most important thing now is to stay calm and be prepared.  This applies to your finances, your health, and your work. We are in uncharted waters and we don’t know for certain how this virus is going to impact us in the short, medium and long-term.  The only way we get through this is together. Be there for the people you care about and please try not to scaremonger.  

I hope you have found this part of the blog interesting and if you have any questions or feedback, please leave a comment.