Please don't lose my money. And noodles on your ears
by Doug Brodie
People who come to see us fit a simple average mould – they are 62, graduate, with a money purchase pot of money, and half of them have a residual mortgage to clear. Most are married, all are property owners, only one owns a Ferrari and two are boat owners. Roughly a third have other sources of income, mainly residual work from their occupation. The optimistic ‘I’ll get NED roles’ tends to be just optimism I’m afraid, we see little of it.
The first objective is rarely asked, but with experience we know it sits top of your list of requirements: ‘Please don’t lose my money’. When you come to see us it is normally with your life savings on the table, so to speak, and you are just about to make yourself unemployed, so going back to work is not an option, there is no Plan B, and it has to be right first time.
The second dilemma you’ll have is working out precisely what the problem is that you need to help with – you are stepping away from a life in which you are expert, having spent forty years practicing and perfecting your skills and routines, running your financial life on 480 pay cheques, on a strict monthly financial cycle. You’re about to make all that structure disappear overnight, and need to create the new tramlines that your daily life will run on. Day time TV won’t hack it.
The third question you have is how to assess the right solution for you – with past professional expertise in your own field, and often leadership in your occupation, you are attempting to assess the correct solution for your lifetime income and trying to do so with multiple reference points. Which reference point is relevant? How do I know?
The secret to getting the answers is to understand and accept two things – it will take a lot longer than you think to be comfortable with your decision, and ‘best’ is the very worst enemy of ‘great’.
The author Darius Foroux explains in his blog:
“Almost 100 years ago, the Russian biologist, Ivan Schmalhausen, developed the Stabilizing Selection theory. He described how a species that evolves to be excellent at one thing tends to become more unsafe to another. That’s why there are no perfect species.
For example, a tall tree captures more sunlight but it becomes more susceptible to wind damage. Siberian huskies need a lot of muscle to pull sleds, but they have to remain light enough to stand atop the ice.
Among humans, babies of low weight lose heat more quickly and get ill from infectious diseases more easily. Meanwhile, larger and heavier babies are more difficult to deliver through the pelvis. That’s likely why most people have “average” height. It’s easier for humans to survive when they’re born with just the right birth weight.
There are always inefficiencies in nature. Becoming perfect tends to backfire, so species rarely evolve to become perfect at anything. These imperfections are what allow us all to survive and thrive.”
We talk a lot with clients because removing financial anxiety around your lifetime income is a very serious and detailed matter if you are not blessed with a financial salary pension. On average it takes people not less than three months to have their questions answered and alternatives considered, such that they understand the what, how and how much of their future lifetime income. I am still having conversations with people who started talking with us back in July 2021 because for them, delaying the decision-making suits their current daily lives, i.e. they believe they don’t need to make that decision yet.
Daniel (not the real name), spoke to us in 2021 with an accrued pension over £1m supervised by a firm where his lifetime adviser had himself retired, leaving him in the hands of a thirty year old planner and his money in a discretionary manager’s internal fund. The relationship was gone, the new planner didn’t follow his current fears and needs, and his money was lumped into the ‘cautious growth’ discretionary pot.
Daniel wanted to retire in mid-22 – however Putin invaded, the markets fell and Daniel thought he didn’t have enough to retire, so stayed at work. He’s still at work, he’s still unsure and life works while putting back the decision.
His decision was triggered by the market fall reducing the size of his pension so he calculated he’d have less income available, however the maths doesn’t work like that because with trusts the income is constant (Ed: not guaranteed), but the price to buy that £1 of income falls.
In January 2022 Henderson International’s share price was £1.73 and the yield was 3.64%. Post invasion it fell to £1.50 so the yield was 4.2% - then the dividend in 2022 increased by 15.87% so the actual yield if Daniel had bought that last year, when he intended to retire, turned out to be 4.86%. Plus that £1.50 share price is now £1.80, up 20%.
Nothing is guaranteed, but track records supported by reserves have proven to be reassuringly predictable. Markets falling simply mean that each £1 of income can be bought cheaper than before. Counter intuitive but true. Our research is focused on analysing income increase rates and sustainability so that we can tell you – with a good margin of accuracy – not just what your income will be this year, but when you’re 70, or 76 or 83, and it is that level of detail we run through and demonstrate before we take on a new client.
Some clients like to get involved in following the nitty gritty of portfolio construction and balance sheet strengths behind the assets we use; others simply need the reassurance of knowing the work has been done – however it applies to you, that’s how we’ll do it.
Talking about noodles
And talking about the market fall, in March last year Putin flattened the Retroville shopping mall in Kyiv where Kseniia worked in the finance department. It’s March 2022, a World Cup year, we’re debating he/her/they at home and this is what Putin did to her workplace:
Kseniia and her mother caught a bus to Lviv, then another across the border to Poland, a new bus to Vienna, new bus to Venice, new bus to Rome, flight to Cologne, train to Bochum, a displaced persons’ centre in Soest for two months, then Ryanair to Gatwick (and you think your commute’s bad!). Through an introduction, we took on Kseniia as a data analyst last October, and very happy to do so.
Being an office in England with a male gender imbalance, after a few weeks we had to explain to Kseniia the English term of ‘pulling your leg’, and she then pointed out that the Ukrainian phrase for the same thing is ‘hanging noodles on your ears’ – so now you know!