HindeSight Investment #110 April 2024 - Newsletter - READ HERE
HINDESIGHT INVESTMENT EDUCATION NEWSLETTER
CONTENTS
OVERVIEW
INVESTMENT INSIGHTS
PORTFOLIO UPDATE
HINDESIGHT DIVIDEND UK PORTFOLIO
OVERVIEW
In what seems like a million years ago now, during the “Big Bang” heydays of the mid-1980’s, I was a very junior trader, learning or attempting to learn the ropes of trading US Treasuries, avidly watching the constantly moving prices in green on the Cantor screen. The post-it notes above the screen would remind me that the left-hand side of the price was the “bid/to buy” and the right-hand side was the “offer/ to sell”. To me, I was ‘away’ like the feeling today of a grateful strike/hack of the first golf shot at the local club whose outside drinks terrace is far too close to the first tee for my liking.
Without a shadow of doubt, the job offer that came from another trading house was entirely due to my constant market socialising at the time, than any belief that I was a budding George Soros in disguise.
At the interview at the head office in San Fransisco, to the question of my expected salary, I pulled a figure out of the air with no real thought process at all. When it was immediately accepted, I can distinctly remember that I should have said higher. But, as that new salary was 5X my previous salary, five minutes ago, it wasn’t too bad! Obviously, crazy times especially for the naïve youth.
Naturally, my spending power and consumption preferences changed overnight in typical fashion. This phenomenon is now widely written about and discussed, known as “Lifestyle inflation”, where people progressively spend up to their increasing earning power. Whether it’s from shared bedsit to penthouse flat, McDonald’s to The Gavroche or back-packing in Derby to The Cipriani in Venice, the urge to ‘enjoy’ your new wealth is overwhelming and ‘justifiable’ and a seemingly compulsory human trait. But, of course, the path is fraught with dilemmas and Lifestyle Inflation is often associated with the being a wealth destroyer, rather than a creator which seems rather paradoxical.
Many will have heard of the 50-30-20 Budget rule where in an ideal world, people should allocate their post-tax earnings according to;
• 50% ‘Needs’, such as mortgage, utility bills, food and so on
• 30% ‘Wants’, such as vacations, unnecessary clothes and accessories etc
• 20% ‘Savings’, (or Debt repayments)
Of course, this has many variations depending on the income, with many lower earning people’s income struggling to cover basic needs with not much ability for wants and certainly no ability to save, but also people who have increased their ‘needs’ and ‘wants’ and still don’t save anything, with increasing debt loads, often by credit cards to ‘frontload’ their today ‘wants’ at the expense of future ‘wants’ with the lack of saving.
Maybe, if possible, the best way is starting with the 20% Savings or debt repayment from the monthly pay packet first. There is really no point in saving if you have debt, as the debt service interest will typically be far greater than the savings rate. Then the ‘Needs’ can be challenged with unchangeable needs, to changeable needs such as food, utility bills and being more included with the ‘wants’.
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