Retirement: what to do with your free time - and how to pay for it
by Doug Brodie
This time I cover two aspects of retirement for you – one is what to do with the free time and your Third Age, the other is how to pay for it.
As mentioned last week, many folk like the idea of simply taking off … leaving it all behind. For a non-sailor, a trimaran doesn’t fall over, has bags of space and is very forgiving to beginners. This is what a $1 million Neel 47 looks like – more at the bottom of the blog.
It’s a numbers game.
Goldman Sachs laid off 3,200 employees last week, from a total headcount of 49,000 employees. They made $21 billion profit in their last full year, $428,571 per person (£352,460).
The billionaire Peter Hargreaves this week advocated that Hargreaves Lansdown needs ‘a huge round of cost cutting’ including shedding ‘1,000 people that they don’t need’, from a total headcount of 2,000 employees. They made £270 million profit in their last full year, £135,000 per person.
There is clearly an awful lot of money swishing around the system and the product providers are generating an enormous amount of fat from their land. By comparison Vodafone make £51,813 profit per person, Lloyds Bank £37,352 and BAE £27,209.
The Independent reports that Elon Musk lost $182 billion in 2022, the highest recorded loss by any one person since 2000, when the CEO of Softbank lost $58.6 billion. Musk’s loss is equal to $498,630,000 every single day for a year, including weekends – let’s not split hairs here, that’s half a BILLION dollars a day.
This is a Fat Cat:
Scottish Mortgage’s share price was £6.90 on 11th May 2020, was £15.43 on 4th November 19 months later, and was again £6.90 on 28th December last month. Wealth creation for the period was zero, wealth destruction for the person who bought in November 21 was -55.3%. As of today, the trust has c£11 billion of investor money.
These are the most prestigious investment bank in the world, the biggest retail investment sales platform, the richest man in the world and the best performing large investment trust in the UK; what the figures show you is that timing is equally important at the very least. Timing has two elements – when you buy and when you sell, and to make the big bucks you have to get both times right.
If you bought Scottish Mortgage on 23/03/2020 and sold on 04/11/2021 you made 228.4% - on hearing that from the media would you have been tempted to buy? The simple average annual return over the last three years was 24.62% - inevitably the Nov 2021 investor feels it’s a stitch up, a con or a scam and that the city isn’t to be trusted.
Our job for clients is not to defy the markets, it’s to explain them.
All our clients come to us for income, and we have been studying this method of investing for a long time. One of our stalwart trusts is Merchants Trust, as that is a specialist, focused on paying income – that is the manager’s objective and he’s pretty damned good at it.
Below is what the investment world looks like when viewed through an income filter: it shows Vanguard’s dirt-cheap passive FTSE ETF, the ‘shoot-the-lights-out’ Scottish Mortgage and the income champ Merchants Trust, over the last three years:
This is the share price movement you see quoted in the media:
This is the total return you’d have received, being share price and income for the three years:
And this is what the income looked like for the three years:
“Sure but that’s only three years …”
The Merchants Trust was incorporated on 1st February 1889, twelve years before Queen Victoria died, it was the year that Coca Cola and Michelin Tyres were formed (I didn’t know that) and the Wall Street Journal was first published. It has increased its dividend in each of the last forty years – covering the 91/92 recession, dotcom, credit crunch and covid crashes.
This is the track of its income over the last twenty five years: it’s not guaranteed, but that animal looks like a duck and quacks like a duck.
Lastly – this is not an invitation to buy any investment; if you’re a client you’ll know already, but if you’re not then there are specific reasons to be wary about committing to Merchants Trust, and when it should and should not be used. Comparative research in a bespoke portfolio shows where it will fit, if at all, why, and what the investor can expect. In short, we do the work so our clients don’t have to.
And how to spend your time?
You no longer need to sentence yourself to half term Saturday 7am at Gatwick with bags and kids amid thousands of others trying to remember if they’ve got the kids’ medicines, double-locked the front door and cancelled the deliveries. You don’t need to queue at Portsmouth for the ferry, or at Folkstone to get the pet checked, you can climb aboard your boat and sail away, governed only by tides and winds.
You don’t need a sextant any more, you don’t even need charts: this is Savvy-Navvy – it’s satnav for sailing, tell it where you want to go, it knows the time, tides and weather, it shows you the route and tells you what time you’ll arrive.
Getting back to $1m of yacht … that’s around £820,000, and that sum otherwise would generate about £2,750 per month in income. If you’re 65, you could use equity release to pay for it.
You won’t be slumming it, you won’t be curled up on a narrow bench strapped in by a lee cloth; in fact the Neel 47 is highly unusual in putting the master cabin on the main deck so you can lie in bed and check your charts on the table at front while she serenely glides through the Pacific Islands on autohelm.
It depends how you spec her and where you think you’ll be cruising, but normally you’ll have an ice maker, dishwasher and more than one air conditioner. Being a trimaran, at dock, at anchor or in port they are flat as a Savoy bedsheet, your own private accommodation wherever you want to be.
Buying it is one thing, but maintenance is another; boats like this are used on salt water and in all weathers, and the upkeep – which will be needed – is normally calculated at around 10% of the value of the boat. Being new you’d have everything under warranty, but replacing ropes – oops! Sheets and halyards and painters – paying for motor maintenance etc, bottom scrubbing etc, all adds up and you’d problem be spending £30/40k. Mind you, if you keep your UK home and rent it out, you’ll probably have the cost covered.
There does happen to be a used Neel 47 for sale at £540k, but you’ll have to pop over to Martinique to pick it up. Or you could have her sailed over for you … enquire within.
