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Ret45's Journal

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Not so much a trading diary but more an attempt to evaluate financial & lifestyle options and hopefully make some good decisions for the future. In this first post I'll outline the background & context that will guide my investment decisions into the future.


Investment goal: When I joined GEI in 2007 my goal was to be financially independent by end 2016 (hence Ret45 – “retire at age 45”!). The motivation behind this was to allow me to leave my current job in order to pursue another (non-incoming generating) career. But thanks to the recession and property crash in Ireland, if anything I have moved further away from this goal over the past four years. So I want to use this journal to help me get back on the road towards financial independence and as a first step to reduce my working hours to 2-3 days per week by end 2012. Another motivation is to prepare for the implications of the economic scenario set out below.


Assets & income: Both my partner and I have fulltime jobs. We’ve seen a circa 20% fall in combined net salary income since 2008, mainly due to increases in taxes and income levies. Been buying gold via GM since 2008 and have some cash (EUR & USD). Have a number of illiquid assets including a mortgaged rental property in Ireland, shares in a German commercial property fund and a small private pension fund focussing on commodities and emerging markets. Will have a public sector pension.


Debts: Have a mortgage on my home of about 3 X net annual salary, and mortgage repayments are 20% of net salary. Mortgage on my rental property is also 3 X net annual salary and repayments on this are covered by rental income.


Economic facts in Ireland: The Irish state is insolvent and has been unable to borrow on the international money markets since 2010. The Government is currently relying on an IMF/ECB bailout to fund its day to day expenditure. Annual expenditure by government is EUR 48 billion and annual income is EUR 30 billion – an annual deficit of EUR 18 billion. Half of all income tax goes towards repaying the interest on sovereign debt. All of Ireland’s banks have been effectively nationalised at a cost of approx EUR 70 billion to date. Ireland is in its fourth year of recession. Unless Ireland returns to economic growth it will be unable to meet loan repayments and some form of sovereign default or restructuring will be inevitable.


Broader assumptions: The situation in Ireland is bad but other western economies are not far behind. I believe that the US and other western economies will continue to experience structural contractions which will result in a double dip, multi-annual recession. Recession will tip already grave systemic solvency problems into crisis. The US will have little alternative but to use the printing press to cover debt obligations which are too great to be resolved by austerity or through raising taxes. The end game in this scenario, eventually, is hyperinflation.


Summary: A bearish outlook, particularly for property, but high risks also exist in relation to stocks & bonds. My income will keep falling as taxes and levies increase and inflation is a particular risk for me with my high level of mortgage debt – to an extent I am trapped in the golden handcuffs of a very low ECB tracker mortgage rate. Longer term, there is a high risk that public sector pensions will not be honoured or will be eroded away by inflation. Internationally, there will be increased volatility in property, stocks and currencies and over the next decade the value of these assets will fall. There will also be increased volatility in commodities and gold – but over the next decade I believe that the value of gold will ultimately increase as a hedge against inflation and due to its safe haven status.


Priorities: Generate new sources of income - to cover income lost through increased taxes and levies - and to allow me to reduce my hours at work. Hedge against inflation, particularly to protect against the effect of possible ECB interest rate hikes on my mortgage debt. Reduce future dependence on pension funds – they may be wiped out.


My next post will look at options for investments. Advice welcome!

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Here’s my thinking on where to put my money.


Until 2009 I was good at saving. But increased taxes, salary hits and new costs such as nannies for the kids have affected my ability to save so I have to be careful with what I have managed to put aside. Of my existing savings, I am about 50% in gold/silver, 50% in cash. I will continue to buy gold and silver on dips.


I bought into a commodity & emerging markets fund from 2008-2010 through a private pension. Won’t be able to access this for 20 years and am wary of it being wiped out in the meantime. Will focus on shorter term investments instead.


I am overexposed to property but there is not much I can do about that unfortunately…I think most of the big property price falls in Ireland have already happened. There could be further drops but my mortgages are on a very low ECB tracker rate and in the long term I think I am better off holding on to my house and rental property and paying down the mortgages over the next 15 years or so and hope that prices start rising again in the meantime. If interest rates go up I might use my gold and cash to reduce the mortgage.


I want to use some savings to build up a stock portfolio, starting small. I think this will help balance out my generally defensive & bearish overall position. I have studied the different approaches and think that the Benjamin Graham value investing approach suits me best – I don’t have the temperament for spread betting and I don’t have the time to trade options. A lot of this journal will focus on learning the ropes of value investing. Are there any other Benjamin Graham disciples on GEI? Can anyone recommend any good books, sites, courses?

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I wonder how long it will take for the Irish Govt to start putting their fingers into private savings now that the pension pot has been raided? December?


Yeah, a lot of people are starting to ask that question. They have already raised the tax on deposit interest and are making noises about the need to get people spending again. After a decade of living on credit and being afraid to be seen in an old car or cheap clothes, irish people are starting to take pride in being thirfty and getting rid of debt. Can't remember the exact figure for the savings rate here at the moment but its gone from something like 2% to 12% in the space of a year or so. Of course that is killing the domestic economy...

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I hope you don't mind me asking this but are you not concerned that there will be a default of government debt?


Some form of restructuring or default is inevitable unless we can somehow return to economic growth this year (we are in our fourth year of recession). Already half of all income tax generated in the country is going to pay the interest on the sovereign debt taken on to bail out our banks. So some form of default, yes. That's why I bought GM gold. Savings in our zombie banks are guaranteed only by a government which is months away from defaulting.

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