Thursday, 26 May 2016

DIY Pension Investing - like DIY Brain Surgery

The idea that the average person should be wholly/predominately responsible to save for his/her retirement is laughable. It may appeal to doctrinaire free market advocates and it certainly appeals to the providers of the many 'products' that are supposed to provide for a care-free retirement.
But much better for the state to provide a sufficient pension. Longevity and investment risks are truly shared, between all citizens and all generations. Costs are very low - no pass the parcel investment games, no expensive admin (everyone gets the same pension, higher rate taxpayers give back more than those in a low tax bracket or not liable to any income tax). This is to some extent akin to the currently debated 'Guaranteed basic income', but only applied to those already retired.

Anyone who has tried to manage his own investment portfolio will understand how difficult investing is. Even so-called professionals time and again mess up, highly acclaimed 'Masters of the Universe' in the Hedge Fund industry often produce lamentable investment returns. So pushing the masses into the investment game means they are supposed to do the equivalent of Brain Surgery on themselves.

By all means encourage people to save, but this part of their retirement provision should not benefit from overly generous tax benefits (that mostly flow to those already enjoying high incomes) and also be free from all other regulatory and bureaucratic restrictions. These additional nest-eggs can help to provide a more comfortable old age than the universal state pension will be able to provide.

48% of Americans saving for retirement are pretty sure they have no idea what they are doing (Business Insider)

Report on the Economic Well-Being of U.S. Households in 2015
(Federal Reserve)

Wednesday, 18 May 2016

IPO excess contributes to Inequality

Talk of 'Shareholder Capitalism' is muted these days. The great unwashed public - thanks to the services for their fiduciaries in the asset management and private banking industry - is only allowed in at extortionate levels of company valuations when the insiders are ready to cash in their chips. No wonder Inequality is rising inexorably - helped by the mantra that those selling a business should be treated with kid's gloves by the tax authorities. Not content with paying a lower tax on share sales than the average employee pays on the earnings he derives from actually providing hard work there is often a tax shelter in the form of (sham) 'trusts' or offshore companies that reduce the tax burden even further - if there is any tax paid at all. Given the secrecy that shrouds individual tax returns we will never know the true picture.
The recent IPO of CMC Markets here in London illustrates the sorry state of affairs. The Public is allowed in at a generous multiple of the capital that is actually invested in the business. So the return that the savers can expect to get from their (risky) investment is burdened by a big disadvantage right at the start. But the greater Fool theory is alive and kicking, every fund manager thinks he can outwit his competitors and offload shares before they take a turn for the worse. Due to the lack of a minimum holding period before capital gains tax is due (zero for institutional fiduciaries in any case) the shares can be flipped the second they start trading in the aftermarket. Talk of sustainable capitalism.
So it is no surprise that the main beneficiary of these non-sensical arrangements goes out and buys himself a modest mansion for all of £ 42 million that he has cashed in from the public. So watch out for the next purchase, a yacht or country pad maybe?