Wealth update – 31/07/2020

We have now been living in our new home in Holloway for two weeks. Aaaaand… we hate it. Holloway is a dump and should really be called Hoboway because of all the homeless people who gather around the corner from where we live. They have also been to the forefront of our building to urinate and to bless us with some of that anti-social behaviour we have previously only heard about from TV news reports. Life in Covent Garden was much better.

In addition, we had no warm water for a full week because the boiler was broken. They actually rented us a flat with a broken boiler. Not a good start. We haven’t even had an apology from the letting agents or landlord. Who rents a property out with a broken boiler and doesn’t let you know about it? I suspect more stuff like this is to come…

We can move out in eight months from the start of the lease i.e. we can serve our two-month notice after the first six months. We feel that we are very likely to leave as soon as possible.

It also surprises me that all – not even exaggerating – of our utility bills are going up. Our water bill is increasing from £20 pcm to £36 pcm (Thames Water estimate as we don’t have a water meter), electricity is almost doubling (again based on an estimate), gas is more expensive, internet is now £29 pcm (was £20, we had to change providers), council tax was £77 pcm in Covent Garden (Westminster) and is now £125 pcm (Islington). Covent Garden was much better!

It’s also a bit of a mess to get the bills sorted. For example, the gas meter on the old gas bill was the one for our neighbour. Obviously, I don’t want to be paying for the gas somebody else uses up whilst racking up some kind of debt on the correct meter. The issue is still ongoing as it seems people who work at electricity companies struggle with sorting little things like this.

We are still waiting to get our security deposit back from our old flat. It’s been exactly three weeks since our old tenancy ended. My understanding is that they [legally] have 10 calendar days to return the deposit from the end of the tenancy. A week after the end of our tenancy we were told that they will not make any deductions and will refund the security deposit in full and it will take 3-5 working days. Of course, we didn’t get anything. We chased and were told it hasn’t been paid yet but were never given a reason for the delay. We’re still waiting.

My cash levels took a bit of a dive due to the moving expenses and the security deposit on the new place. This should even out once we get the security deposit back from the Covent Garden flat.

My EIS valuations stayed the same, cash went down but all investments went up. My net worth increased by £9,733 this month (this includes £1,600 ISA top-up and £292 pension top-up and £50 into Premium Bonds). My net worth is now £109,846.

We also had some really good news. My girlfriend applied for and got a big promotion at work. She is now earning more than me. Her future is golden! I’m very proud of her.

On a slightly different note… I recently found out about effective altruism [Peter Singer: The why and how of effective altruism]. The idea is to support charities which do most good with the donations they receive. It turns out that the most efficient ones (i.e. charities which help the most people per £ donated) are the ones which help deworm Africans from parasites and fight neglected tropical diseases.

I’ve been donating £12 pcm to a charity which fights homelessness in the UK. This isn’t a cause I’m particularly drawn to… so I decided to switch it to a much more efficient one. I also decided to increase my donations to £15 pcm (also matched by my employer) to benefit The End Fund. Apparently it costs about 50p per person to cover a year’s worth of medicine to treat neglected tropical diseases. I’d rather save/help 60 people each month than pay for a few meals for the homeless in the UK.

In summary, it was a mixed month – some good, some bad. I’m glad my net worth improved and that my girlfriend is now in a significantly better financial position than she used to be.

Wealth update – 30/06/2020

It’s been three months since my last wealth update (30 March 2020). As you all know, the markets have gone up since then and this has helped improve my net wealth.

So what’s changed? One of the things I noticed is that some of my EIS shares have gone up a fair bit. I only have 3 EIS investments. One of them – Den (smart light switches and sockets with an app) – has already gone bust i.e. all the way to zero. I only invested £500 and got 30% tax relief on it (where I should get some loss relief)… so my loss will be about £300ish. The other two investments have done much better as the share price estimates have gone up and my EIS shares have now more than doubled (Yay… I guess!).

In all seriousness, I want to get out of my EIS holdings and just cash them in as I’m quite uncomfortable with the illiquid nature of these investments. I simply have no exit strategy. This worries me.

I crossed a big milestone on 1st July 2020 – my net worth exceeded £100,000. Apparently, the first £100K is a bitch to save up as it’s mostly made up of your savings rate, not investment returns. After that investment returns will do more of the heavy lifting in the portfolio. I’m looking forward to that.

My flat buying plans have changed. We are not buying anything this year. Instead, we decided to move and rent for a bit longer. This will reduce our costs a bit as the rent drops from £1,500 pcm for a studio flat in Covent Garden to £1,150 pcm for a one bedroom flat in Holloway. However, our travel costs will increase a bit (although these will still be minimal for a couple of months as we continue to work from home). There will also be a small increase in council tax. In the end we will have more flat for less money.

The new flat was listed for £1,250 pcm and we offered £100 less. At first, the landlord’s agent asked us to increase the offer but we decided to stay firm and told them we are happy to walk away if they do not accept. A few short minutes later we got an email confirming the landlord has accepted our offer. It was that easy. I would encourage everybody to negotiate a bit. This additional £100 pcm saving will add up over time.

We’ve had some redundancies at my workplace. Naturally, that worries me. However, both of us are still employed and continue to get a paycheck. It’s good to reduce our biggest expense (rent) as we’re early in this recession and I expect things to get much worse.

Let’s see how things go.

The property market will crash (I think)

We have been trying to buy a flat for months and many months ago (August 2019) agreed on the purchase with the seller. It’s taken a long time to sort out some legal paperwork on the seller’s (the estate agent loves the word “vendor”) side of things. A few weeks ago, we got word from our solicitor that he has now finally received all the paperwork he needs to continue with the purchase.

However, Covid-19 happened and he asked us if we were still planning on to continue with it. At first, we thought that this is fantastic news and we should buy the place. After some thought, we got more cautious as the UK economy is headed into a massive recession, no-deal Brexit is more real than ever before and my employment isn’t that secure.

Yes, we’re lucky that both of us can continue to work from home but I can see business drying up in the coming months (although summer is always a bit slow). My girlfriend doesn’t worry as her job (in mobile gaming) is going well and her employer is making record sales as more people are at home and have time on their hands.

We decided that we should renegotiate the price on the flat and offered to buy the flat at a 5% lower price. The estate agent replied a week later and declined our offer as property only goes up in value (paraphrased and read between the lines a little). This was disappointing news and we decided to pull out.

Luckily it’s only £250, which we lost out on, which were some legal fees we incurred early on in the process.

I’m a bit of a crashist when it comes to the property market. We have 7.5 million people on furlough as of 10th May 2020. Most of them are earning less now (80% of salary up to £2,500 gross p.m. where the employer could voluntarily top-up to 100% of salary), which means there’s less demand to buy properties. Similarly, I predict, quite many of today’s furloughed staff will have no job to go back to in a couple of months’ time.

Unemployment is at 4% as at Feb 2020 but this is expected to double once we have the numbers available. This is not good for property prices.

Millions of people have requested mortgage holidays. A lot of people here are already unable to pay their mortgage, what’s going to happen in a few months’ time when the furlough ends? There will be defaults and people will lose their homes.

The estate agents such as Knight Frank and Savills etc have come out with predictions of 3% or 5% falls for the year, which will rebound in 2021 – what a joke. They have a vested interest in saying that things are all good and we should all be buying property left, right and centre. The fall in property prices will be significantly more than just single digits. This crisis is going to be huge as big parts of the economy are shut down.

How do you imagine the airlines go back to normal? The tube with wings where everybody breathes the same air is impossible to make safe for travellers. How do you do social distancing on a plane without big increases to ticket prices? I like many would be unable to fly to, say Spain, for a holiday if a condition of entry to the country was for me to self-isolate for 2 weeks on arrival. The travel industry will be in a new world of pain.

London has many AirBnb’s as well. Guess what, they’re empty because nobody can travel. That’s not going to change for a while. I expect these chaps will flood the market with either long-term rental properties or try to sell and get out of this business. We shall see. This is good news for lower rents and lower property prices.

What about a vaccine? Well, mostly the fact that it doesn’t exist. Even if it did, it would take many months to produce it and distribute it all over the world for everyone to feel safe again. I’m not saying they won’t find a vaccine or develop a cure, I’m saying it will take time, during which the economy will suffer.

OK, back to property prices. Some of the highest earners are in the tech sector – programmers and what not. They can work from home and many (e.g. Twitter) companies have already said they are happy for all their staff to continue working from home even after the plague. This has increased demand for homes outside of cities. Why would somebody on a six-figure salary pay £3,000 on rent in a Central London flat, if they could own a nice home outside the city? I expect a lot of high-earners to relocate further outside big cities where their money buys more happiness. This will drive prices down in big cities but increase them in smaller towns.

My friend asked me how long do I want to defer buying and paying rent for nothing. If I buy now, I’d still be building equity and have an asset. The problem here is that I’m not looking to buy a forever home. I’m not sure I will be in London long term. Therefore, buying now and selling within a couple of years may be very expensive if property prices crash. I could, of course, rent the property to tenants when I move elsewhere but that’s not something I want to do – I don’t have an overwhelming desire to be a landlord and deal with fixing boilers, washing machines and water leaks. It would also be difficult to re-mortgage a few years down the road if I was in negative equity and there’s a risk I’d end up paying more in interest.

Why take all the above risks? The only way I’d take these risks is if the upside was proportional to them. I’d be happy to buy if I got a price 20%+ cheaper than the prices in the pre-Covid-19 world i.e. in Feb 2020. I think it’s a bad idea to go ahead with a property deal agreed in the pre-Covid-19 world now that we are in the post-Covid-19 world. You should only consider doing that if you are buying something for the long term.

My plan is now to sit tight and adopt a wait-and-see approach. We also decided to move to a cheaper rental flat as living so centrally doesn’t have the benefits it used to have (everything is closed – cafes, restaurants etc, walking distance to work isn’t that attractive as we work from home). We are paying too much for the luxury of living in Covent Garden in Lockdown London.

My employer has also said that they will take a much more cautious approach to get back to normal compared to any Government guidance as a big part of our clients are elderly and more likely to suffer health problems from Covid-19 infections. My girlfriend was told that they expect most of staff in her company to work from home until at least September 2020.

Taking all of the above into account, I think we have made the right decision by not buying the flat. I will keep you updated once this changes. In the meantime, we will continue to squirrel away money for an even bigger deposit.

Take care!

How I managed to get a refund for my cancelled Ryanair flights

Less than two months ago I booked a trip to Germany for a holiday during the Easter weekend. There was a festival/congress I wanted to go to. The plague wasn’t that big of a deal back then and it looked like it would all blow over by the time my holiday would come around. I also have a travel insurance policy and therefore felt relatively safe making the bookings. At least, so I thought. History has proven me very wrong.

image of the word cancelled

First, the event in Germany got cancelled as it had more than a hundred participants. Then the flights got cancelled and then the hotel booking got cancelled – all due to various lockdown reasons in response to the Covid-19 pandemic.

I requested refunds for all my travel bookings and didn’t have much trouble with the event and the hotel refunds. I also got a refund from Stansted Express as I no longer needed to travel to the airport. Only Ryanair was difficult as you may have heard from the media. It seems the company, along with other airlines, is at risk of going bankrupt if it refunds the money it owes to its customers.

My flights got cancelled on the 24th of March and I got an email from Ryanair with instructions on how to apply for a refund. I did that on the very same day. I was notified that it would take up to 20 working days to get a refund. My understanding is that legally they have two weeks to refund a cancelled flight, but given the plague, I thought giving them more time seemed reasonable.

A few days later on the 28th March, I got an email that said
“Due to the high volume of flight cancellations due to COVID 19, we are experiencing an unprecedented high volume of requests. We are currently working through the backlog and ask that you please bear with us. Please do not resubmit your request.”
OK good, it’s being worked on but it will take a little longer, which is reasonable.

9th April I get another email from Ryanair, which states
“As previously advised, our Customer Services Team are experiencing an unprecedented high volume of requests due to the COVID-19 crisis and we are prioritising our most vulnerable customers. This has been compounded by government public health restrictions on non-essential work travel which means we have less staff available to us during this busy time. Please rest assured your refund request is currently in the queue and will be processed. If you have selected new travel dates and would prefer to move your booking, please contact us. We appreciate your patience at this time.”
The please rest assured part sounded good to me and so I continued to wait.

On the 20th April instead of a refund Ryanair sent me a voucher, which I never applied for. The email read:
“Over the past months the spread of the Covid-19 virus has caused many EU governments to impose flight and/or travel bans which grounded over 99% of Ryanair’s flights. We are doing everything we can to support our customers, our people and protect jobs. We are ready to return flying when Covid-19 is defeated, hopefully sooner rather than later.
We regret that these Government travel restrictions have forced the cancellation of your Ryanair flight(s) under booking reference:: [my booking reference].

Please see below details of your travel voucher for [£££.££]GBP, the full value of your unused booking. This amount can be used for the purchase of Ryanair flights and other services at any time over the next 12 months. It is simple to use this voucher when making a booking on the Ryanair website or app.
If you do not wish to accept this voucher option and wish to move your flight or request a refund, please click here to contact us. Please note that as our customer care agents are required to work from home to limit the spread of COVID-19 virus, payment security restrictions prevent us from processing refunds as quickly as we would like to.

We invite you to use your voucher to book your next trip and we look forward to seeing you again on a Ryanair flight in the near future. Passengers who made their bookings using travel agents, or on line travel agencies should contact these companies from where they purchased their tickets to find out more about their options. Our priority always remains the health and well-being of our people and customers.”

Naturally, I was unhappy about receiving the voucher. I followed a link from that last email to see what I can do to request a refund. I found a small blurb which said:
“Can I receive a cash refund instead of voucher?
You can request a cash refund however bear in mind we will place your request in the cash refund queue until the COVID-19 emergency has passed. We highly recommend using the refund voucher as these are readily available and you can book flights on all Ryanair Group airlines in over 200 destinations in Europe and the Middle East.”

I have zero interest in using the voucher as it’s impossible to say when I will be travelling again. Also, the voucher would be worthless if Ryanair goes bust. I would also avoid flying with Ryanair whenever possible. No thank you, I want a refund.

There were no guidelines on how to request the refund on Ryanair’s website but they had a chat function, where I decided to try my luck (there was no phone number to call). That did not work as the chatbot (not even an actual human being) was not very chatty. After receiving no response to my query for more than an hour and I gave up on “chatting” with an algorithm to find a solution to my problem. This is a great example of appalling customer service.

Enter section 75 of the Consumer Credit Act.
“Under Section 75 of the Consumer Credit Act, your credit card company is jointly liable if something goes wrong with a product or a service you’ve paid for by credit card. You can potentially claim for any breach of contract or misrepresentation by the company from which you’ve bought your goods.” [according to Which?]

I called my credit card company (Bank of Scotland) and asked what I need to do to lodge a section 75 chargeback claim. They gave me a claims phone number I needed to call – they weren’t that useful as they could’ve just transferred me to the claims number, but I guess they just wanted me off the phone.

I called the claims number, explained my situation and was given an email address to which I needed to send evidence to support my claim. I emailed them all the email correspondence I had (I printed pdfs of each email I had), the flight itinerary and the voucher email that same day (20th April).

A few days later on 23rd April, I got a “temporary” credit applied to my credit card. The bank refunded me the money and said Ryanair has 45 days to dispute this transaction. If they do, the temporary credit might be removed, if they don’t it will become a permanent credit.

I was surprised by how quickly the bank worked. A part of me was sceptical as I thought the section 75 claim wouldn’t work. Normally this claim is used where a company is refusing to make a refund, however, Ryanair never refused – instead, they vaguely said it will happen in the future after the pandemic. However, Ryanair also misrepresented in the refund process – they said my refund was being worked on and then sent me a voucher, not a refund. This is misrepresentation and therefore the section 75 claim should stick. I will let you know if anything changes on this front.

However, for now, things are good as I got all of my holiday bookings refunded. It took about a month, a few emails and a section 75 chargeback claim – but it was worth it.

Happy days!

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Should you ever use a financial advisor?

financial advisor behind a computer

There’s a lot of criticism in the FIRE community when it comes to taking advice from financial advisors. I’m here to address the main concerns:

1) Financial advisors will still get paid even if your portfolio loses money. They don’t care about what investment performance is achieved.

Wrong. Of course, financial advisors care about their clients and their wellbeing. Advising clients is a long term business and not about shafting somebody to make a quick buck.

Yes, most advisors charge say 0.5%-1% to manage a client’s portfolio. Yes, that ongoing adviser charge is payable even when your portfolio has lost money. However, if financial advisors lose money in your portfolio, it doesn’t mean they haven’t done their job to justify their ongoing advisor fees. Quite often, the portfolio an advisor looks after suffers significantly smaller losses than a portfolio picked by clients themselves. I’ve seen it many times myself as clients like to have the majority of their wealth managed by professionals but leave a small pot of “play money”, which is typically invested in the latest hottest stocks with very little diversification.

The “play money” can go through wild swings and at times look like a fantastic investment in comparison to the advised portfolio. However, we’re not comparing apples with apples here if the advised portfolio is significantly less risky (has less in equities) and the “play money” pot is 100% invested in shares.

Advisors are interested in growing their client’s portfolio because if the portfolio grows, so will their fees because their 0.5%-1% fee is applied to a bigger portfolio.

Competition is another driver which necessitates the requirement to grow a portfolio. There are many attempts by competitors to steal a client’s portfolio. Somebody might offer a better track record or lower charges, or an improved service when looking at the client’s monies. Clients also speak with friends and family and can be influenced by them when moving monies around. Advisors know this and that’s why they do what they can to grow clients’ assets and keep them happy.

2) “I can do it myself. I am better off keeping my costs low and as an advisor is an additional expense, I should avoid it.

Do you do your own plumbing? What about your accounting? Do you know how to fix your car’s engine? Would you extract your partner’s wisdom teeth?

It’s hard to know everything and there’s a reason we have specialisms out there. They all charge a fee for their service – why should you not want to pay for a service you receive from an advisor? If you don’t want the service, you don’t have to sign up to it.

computer screen with market charts

The fact is most people know nothing about investing and the financial markets. They would much rather have somebody else look at their portfolio than deal with it themselves. If you are a busy entrepreneur or a mother of three young children, you don’t have the time, inclination or interest to research the ins and outs of building an investment portfolio – you just want it to be sorted and not worry about it. Financial advisor help with that.

A financial advisor is also your investment coach. Every time there is a wobble in the stock market, they get a massive increase in calls from scared clients. People call their advisors and ask what’s being done to prevent losses or demand that everything is sold to cash right this very instant as it’s their expletive money! Selling during a market correction is, of course, a very bad idea as people would unlikely be able to benefit from a market recovery. Often sellers would lock in a permanent loss of capital, miss a big part of the recovery and get back in at higher prices. An advisor would explain this to a client and advise them to stay cool and carry on. Ask yourself, is it worth paying somebody 1% a year and risk missing out on 10%-20% of investment gains because you felt better staying in cash? I’ve seen clients who gave up on the stock market after the 2008 crash and have held nothing but cash since – a good advisor would have helped them achieve much better returns than cash ever could.

If you know how to invest and are comfortable making investment decisions, then more power to you. You do not need an advisor to look after your portfolio. However, there are other things you might be able to benefit from such as tax planning, estate planning and protection (insurance) planning. For example, do you know what’s going to happen to your FIRE strategy and your family if you’re unable to work due to a serious illness (cancer or heart attack) or your partner dies? Do you have a will, if not, do you know what will happen with your money on your death? Do you know what a lasting power of attorney is? Do you know how much inheritance tax your family will pay when you’re gone? Should you take all of your pension tax-free cash now in one go or in stages? What should you do with the £321,472.89 transfer value of your defined benefit pension? Oh, you’re divorcing – do you think lawyers and judges have a good understanding of financial assets to ensure how to split the marital assets in a fair way? Do you think you need advice?

investment growth on a screen

3) Many people think that an advisor just invests your money.

Financial advisors do a lot more than just invest client’s money. They work out the best way to reduce taxes by using different tax allowances, tax exemptions and make changes when the regulatory environment changes.

The best examples are in the pensions world. There have been massive changes in the UK pension legislation and these can have a huge impact on somebody’s finances. For example, not having your children nominated as death beneficiaries on a pension could mean that a big tax charge is payable when your children inherit the pension. No, this is not an inheritance tax charge, it’s income tax. If you die after age 75 (and most people will) with monies in your pension and your child (or any other pension beneficiary) takes the inherited pension money as a lump sum paid into their bank account, it would be fully taxed as income. How would you feel if you inherited a £500K pension and had to pay £200K+ to the taxman? You could have kept it all in an inherited pension account, if you had used a good financial advisor. This isn’t common knowledge and the average person on the street has no idea how these things work. Would you be OK paying somebody a relatively small fee to avoid paying many thousands of tax down the road?

Advisors add value, just like a dentist, a mechanic or school teacher. If they didn’t, they would be, quite rightly, out of business.

4) Advisors are all a bunch of sleazy salesmen.

Yes, financial advisors sell products but their main value is in providing the service of financial advice and they charge for it. It used to be the Wild Wild West in the UK as anybody could call themselves a financial advisor and start flogging financial products, which paid them the biggest commission. This is no longer possible. Commission payments have been largely outlawed (only possible with insurance products) by the regulators. Client protections have been improved and advisors can be held responsible for mis-selling any products.

The main thing advisors sell is advice – the products are just a tool to achieve the clients’ objectives. It’s common to agree on the fees with clients in advance so that they know what becomes payable and when. There’s no smoke and mirrors anymore. Charging has become much more transparent and people know where their fees go.

A good advisor will not sell you something you don’t need.

The first meeting with an advisor is almost always free of charge or at the advisor’s cost. It’s an opportunity to discuss your situation with the advisor to see if there are any opportunities to start a mutually beneficial relationship. The advisor won’t give you any advice in that meeting but it might be worth having a discussion to see if there’s something obvious you should be doing. This could be as simple as checking with your employer if you’re maximising your pension contribution matching arrangement.

Summary

People need advice. I think they will make significantly better decisions if they take advice from financial advisors. Even if you don’t value their investment advice, there is so much more you can benefit from using an advisor. As mentioned above, the first meeting (often) doesn’t cost anything and if you don’t like what they have to offer don’t go ahead with it. Shop around. You can always disagree or ignore advisors and continue going your own way.

When you think about it, among other things, financial advisors help people retire and pull the trigger to stop working, which is exactly what FIRE does. Maybe they’re not so bad after all.

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