Retirement isn’t a ‘thing’, it’s a style of living.
by Doug Brodie
/1. How to get a 7% income yield on your pension, or, ‘Can you fix a leaking sink?’
Can Roger Federer fix a leaking sink?
He won 20 Grand Slam matches compared to Borg at 11 and McEnroe at 7. He won 369 matches of 429 played, winning 86.01% of his matches: all in all a pretty fine tennis champion, one of the finest natural sportsmen we’ve seen. I’ll bet, however, that you don’t know who Severin Luthi or Ivan Ljubicic are? They were two of his coaches from 2007 till 2022.
In this morning’s newsletter, we introduced you to The Desperate Man – here’s another picture of him:
We all know him, and I have been several times: famously at a young age in a newly acquired flat, I decided to change the radiator in the sitting room on Sunday evening after supper. I had (unwisely) decided to buy a new-fangled spray can that said it would freeze the water inside a pipe so repairs could be made without turning the water off. I discovered at 8.30 pm Sunday night, after just one minute with a hacksaw on a copper pipe, that the marketing blurb was not as accurate as it suggested, and I had no idea where the mains tap was.* Ever since, I have sent Christmas cards to every plumber we have had in our local area. Not my area of expertise.
*I phoned a friend: the solution was cutting up a cycle inner tube and wrapping that round the cut. Thanks Nick.
Spray and pray.
Many years ago I had a client who had been made wealthy by her boss’s adroit selling of the company that employed her, triggering share option payments in the low £millions. After a few years, the lady in question met a new partner, an accountant by profession who had also been involved in a former employer’s sale leaving him ‘in funds’. Being a male accountant who obviously ‘knows about money’ he chose to run his own investments on that well known platform, starting with Hargreaves and finishing with Lansdown.
I don’t know how the pillow talk went, however, a year or so later the client said she’d wanted to let the partner ‘run’ part of the money for her; at valuation time, she sent through the ‘partner portfolio’ to us. It was long. It was very long. In fact, for the £500,000 or so there were precisely 100 different fund holdings, covering every market and every type of asset.
This is known as ‘spray and pray’ – Warren Buffett describes asset diversification as something done by people who don’t know what they are doing, and certainly that accountant was the man in the picture who had bought every plumbing tool from B&Q but didn’t have a clue what he was doing. (He could have bought a simple MSCI World tracker and a mixed bond fund, but I guess he thought that wouldn’t look smart.)
It’s always a man, isn’t it?
That 7% - you can either invest in something a little bit wobbly that has to pay 7% pa to attract investors, or a single share yielding 7% that can just go pop overnight like BP did in 2010 when it stopped its dividend.
The correct way for your pension that needs to pay you this year, next year, in 5/10/15 years, is to buy a reliable income that grows. Start early, don’t be The Desperate Man.
Here’s a redacted client summary showing how you get to 7%, so that in four years’ time the client portfolio will be yielding 9%+. It’s never where you start.
/2. To retire or not – how to tell when the time is right.
Ian and Jane took a train to Sicily:
Then bought a motorhome and have covered Svalbard to Spain and all stops in between. A grandson in British Columbia, a son-in-law in law in Dominican Republic. Retirement fits around their travel, their travel fits around their family diaspora.
Alice has bought another horse, periodically disappears off to European equestrian centres to finesse her jumping skills, whilst her brood are in those in-between years, some at university and others a few years after, but grandparenting yet to start. In the meantime, kept busy three days per week with the non-exec roles in small companies she knew from her accounting days.
Claire is another; retired from FTSE board duties, a solicitor who was company secretary, she found that staying at home was not the joy originally foreseen and is now back working full-time four days per week, and on the fifth day, embracing grandmother-hood.
Standing at the crossroads of retirement can feel a little like being back at school with close mates, planning an adventure. Now we might find ourselves in broadly the same stage of life - but choosing very different routes forward.
To retire or not retire: it’s actually a personal lifestyle.
This outline is very much inspired by the wise owls of a company called Quiet Room – a uniquely impressive company that handles communications for the pension sector, whose employees are musicians, children’s book authors, festival organisers and film makers.
Some embrace retirement with remarkable enthusiasm, stepping right away from the working routine. Many think of travelling and learning languages, painting or picking up the piano / guitar / flute / cello et al., all with good intentions for a year or so. Others retrain as yoga teachers, friends continue to run a family business with admirable resilience, though not putting in the shift hours that they used to in their 40’s (that’s pubs & restaurants for you). Everyone’s path reflects a different balance of energy, priorities and circumstance. We are not the same, retirement isn’t a thing.
For me, I am fully subscribed to the concept that if you enjoy what you do, you never have to work. I have three grandchildren (so far), my wife is a committed and highly enthusiastic grandmother which, all put together, means renewing the office lease last year for another five years was the correct thing to do.
Motivation runs deeper than spreadsheets
In the first stage of retirement there is often an unexpected professional “Indian summer.” Experience, judgement and calm perspective - qualities that only really develop with time - are suddenly in demand. In many conversations, age is less a disadvantage than an asset.
“Walking away now would feel less like relief and more like stepping off a moving train just as the journey becomes interesting again.”
Of course, friends are not entirely wrong. Work can be stressful and occasionally exhausting. Yet most of the time it energises, providing structure, purpose and a sense of continuing relevance. As children grow up and life naturally shifts, work and the relationships that come with it can help fill spaces that once looked very different.
Retirement is not about the money.
/3. Why investment trusts and not unit trusts? Here’s why: we rely on data, not opinion, so here’s the data.
Most you win, some you lose. We don’t use all these trusts (on the left), we do use some of these unit trusts (on the right).
/4. The later it gets, the less inhibited many become.
(You should have grown out of the 4 am taxi ride by now).
Mike Bell is a macro man – that’s nothing to do with his diet, it’s about taking investments across the globe in all asset types. He writes well:
The later it gets, the less inhibited many become. In markets, valuations rise. Nobody wants the party to end. The dancefloor is the place to be.
Today, it is late in the economic evening and US equity valuations are stretched. But imagine the host orders a round of shots for everyone on the dancefloor. This is the equivalent to the late cycle fiscal stimulus currently underway in the US. Then a new barman, who once suggested taking the punchbowl away early at a previous wedding, is nominated by the host to get everyone who has been sitting on the sidelines up on the dancefloor. The remit this time is clear though: get everyone involved and keep the party going.
The barman sends drinks over to everyone not yet on the dancefloor - cutting interest rates - while suggesting the host need not order any more shots. "This party has still got plenty of life left in it," he says.
As someone else once said: "As long as the music is playing, you have got to get up and dance." Benchmarked investors, understandably, cannot just sit it out.
So, in face of a market correction, how much risk does one take?
Like all investors, I hate missing the last dance.
But as I have aged, I move to dancing nearer the door as it gets towards the end of the night. That way, I can still enjoy the last bit of the night on the dancefloor but not have to wait too long for my coat when it is time to leave.
About the author
Doug is the Founder and CEO of Chancery Lane. He has worked with personal investing since 1989, specialising in income investing for the last fifteen years, firstly with Old Mutual and running his own award winning business since 1995. Doug is chartered with two professional institutes, CISI and CII and holds the Certified Financial Planner licence.