Small Brain Says VAT Rise is Wrong
He might make statements like this, but wasn’t Small Brain part of the government that got us into this mess in the first place. Let’s face it, there are only so many things a Chancellor can do and raising VAT is one of them.
What would Small Brain do?
He would certainly not apply the old adage, that if you’re in a hole, you stop digging.
His friends in the unions would probably have walked him to the IMF by now!
If others use their car less, then the VAT rise would be a pain worth enduring!
But he’s ignoring Newton’s Law here. People will take actions to avoid the VAT. They’ve either bought early or will be delaying purchases until things get better.
I think we’ll all wonder what the VAT fuss was about in a couple of months. Except of course for the truckers, who will protest! But it could be argued that they’re losing more business because a lot more goods are being moved by rail.
Zopa As A Cash Flow Smoother
As I indicated in an earlier post, I’ve had a lot of expenses over the previous few weeks, mainly concerned with Christmas and moving house.
As I have invested quite a few thousand in Zopa, over a month I get about £2,000 in repayments and interest to re-invest. But this month, I’ve borrowed some of that to avoid charges and make sure payments go in on the right day. At the end of the month, I’ll put it back into Zopa or something even better.
This is not what Zopa was intended for, but it does show how there are easy ways to avoid being charged by the enormous wunch of bankers out there.
The Alternative Annuity
The government has stated that it will be abolishing the rule on annuities that means that insurance companies chew up a large proportion of your pension in adminstration charges and incompetence. Whether they actually will abolish it is open to question, as I suspect that insurance companies will be difficult to throw off this particular gravy train.
There is an old joke, which goes something like “How do you make a small fortune?” with an answer of “Start with a large one! and give it to a financial advisor!”
I am not a financial advisor, but I’ve lost millions due to their incompetence. Don’t worry as I’ve also made millions by completely ignoring their advice! So on balance I know a good investment when I see it and a bad one, when no-one else does. I should say that I don’t invest in stocks and shares as I’m then at the mercy of a market over which I have no control. I do wish sometimes, that in the past, I’d used my technological knowledge to buy a few stocks. As an example, I told people that Alan Sugar would be a star in the early 1970s, as what do you get if you give technology to a man, who made his first money flogging car radio aerials and electronic goods from a van? But I had no money to invest when he took Amstrad public. I also met one of the founders of 3Com at Comdex in Las Vegas and thought they were a good thing! They had a tiny stand there which was probably about the size of Alan Sugar’s van.
So do I regret a life of missed opportunities? No! I’m with Piaf on this one!
Life is just a series of pauses, waiting for the next bus to come along. Luckily the buses are getting bigger, better and more comfortable.
It is two years and a couple of months, since I first put the money from C’s Porsche Boxster into Zopa. I added a bit from my pension fund and a few thousand here and there, so that now I’ve got about £50,000 invested. Not a large fortune by any means, but typical of the sort of pots many people of my age have in savings. Every month now, it repays me about £3,000 back in interest and repaid loans, which I reinvest immediately, so the pot is growing! I have had three loans go bad on me, but I’m only £350 down on them and one has even started repaying its debts.
So if you look at the sort of cash flow, you get with Zopa, it is a sum paid paid in, which gives you an income over a period of years, not unlike an annuity. But without all the charges!
So does a retirement financial strategy go something like this. As you approach retirement, you put a small sum into Zopa, so that you get comfortable with the concept. Then as you get happier, you transfer your money accordingly. There is one problem with Zopa though; that is that it is not liked by financial advisers. After all where’s the commission? If they are Zopa investors themselves they may get a bullseye, if they introduce a new investor, but that’s not going to make anybody rich.
Zopa though will be followed by other imitators. Some will be better, but the ones I’ve seen so far are not, often because they have tried to accommodate the dreaded financial adviser.
Getting Out of Zopa
I’ve got about £50,000 of my money invested in Zopa. Most of it came from the sale of C’s Porsche Boxster, an upfront pension payment and lots of small payments when I’ve found that I’ve some money to spare. I’m now moving house and might need some money to buy bits of furniture, as not everything I’ve got here will fit.
I could use Zopa‘s standard method of getting out called Rapid Return, which I discussed here, but why should I give others the benefit of my good payers?
So out of curiosity I added up how much money was returned to me in the thirty days of November! It was £2,600. My statistics don’t tell me at present how many loans were repaid early in that time, so I can’t be sure if I’ll get this figure back each month.
But it does illustrate that if you want to invest a sum for say three years or longer, then Zopa might be a place to consider! Provided of course that you understand fully what you are doing!
By any measure, though I’m getting more than I would if I’d invested it with any of the reputable wunch of bankers! Here‘s what Lloyds TSB offer.
The other problem with a bank, is that doing business with them isn’t any fun at all. With Zopa you can play the rates to lend your money for either more interest or better clients.
My First Second-Hand Loan on Zopa
I said a few weeks ago, that Zopa had introduced a get out method called Rapid Return.
Today I acquired my first second-hand loan. So it was only £30, but I did lend it at a rate half-a-percent higher than my minimum rate.
So it would appear that for other borrowers it might be a good thing, as you get a chance to pick up safe loans at a good rate.
The Office of Budget Responsibility
The Office of Budget Responsibility or OBR may well turn out to be one of the lasting ideas of the Coalition Government.
It is supposed to be independent, and lets hope it stays that way!
But isn’t it in a way, exactly the same as any business having an external set of auditors to check what it is doing?
After all, the biggest failures in business are often ones where a bully like Maxwell gets the auditors to approve his dubious actions or at least not notice them.
It could also be argued that some of the biggest political economic failures have been caused, by dubious thinking by politicians and bad or corrupt economic models. As an example, many of my Irish friends, thought the Celtic Tiger woyuld come a cropper and planned accordingly.
Only time will tell if the OBR is a good thing! I do worry though, that sometimes it is less gloomy than the government, but then it may have much better figures, that lack any political gloss or bias.
A Wonga Moment
I first became aware of Wonga, the on-line lender, a couple of years ago at an on-line awards ceremony. It didn’t win, and I can remember telling a lot of people at the time, that I didn’t think it was very ethical or even legal, as it charged a very high rate of interest for small sums. I think I even asked the guy doing the presentation a question on this basis, but I can’t be sure.
I’d hoped that the businesss had gone to the dogs, as I didn’t like it, but I now know it hasn’t, as it adorns the shirts of Blackpool FC. And then on the train to Norwich this morning, I saw the headline, What ‘pay day’ lender Wonga’s television advertisements fail to dwell on: 2,689% APR , in the Mail on Sunday, being read by the guy next door.
In other words, they charge hundreds of times more than my preferred on-line lender, Zopa.
I have no experience of using them, but the Mail has a fairly worried tone about the company. I would suggest that before you use Wonga, you read their article and discuss it with someone who knows finance better than I do!
I also write this from experience of being a partner in a finance company and the sometime holder of a Consumer Credit Licence. I also once had a business card that amongst the things I did, said. “Loans Sharked”
Wonga though might have a postive side. When there is a general awareness of how much they are being charged by some of the highly-advertised finance companies, people may actually realise that there are other and much better ways of getting their finances in order.
A Zopa Surprise
I have three Zopa loans that have gone bad and have been written off. They have cost me £340.48 against total interest paid of pver £5,000. So it’s not too bad really.
Imagine my surprise when I found that after twelve months of no payments, one of these dead loans credited me with three pounds. So there is some life there!
Is Zopa Getting Too Popular With Lenders?
I keep fairly detailed statistics of my lending on Zopa, so I am able to discern trends fairly quickly. I usually set my rate so that money will be lent out at a Medium speed, which usually means that I lend at a rate between of 7 and 8 percent, with a very low risk of default. Out of the well over 2,000 contracts I’ve lent, only three have gone to default, which is a default rate of just 0.13% by contracts and 0.07% in terms of money.
So I think I’ve got a safe philosophy. But who knows?
However, there is a trend that has started to be noticeable this month.
Zopa allows you to find how much money is wanted by clients and how much is available at all times. Obviously to get a good lending speed to clients, the amount of money on offer should be higher than that demanded. At the start of the month the ratio of Money Offered over Demand was about 2, but it has since risen to over 3.
The reason is obvious as in that time the money on offer has risen from about £15M to £20M.
As every action has an equal and opposite reaction, the extra money has forced the rates that borrowed have to pay down by about half a percent.
So I am now not getting as good a return as I was in the past. But I’m not bothered as the money is much safer than it was in an Icelandic Bank and my returns overall are upwards of five percent, which is above the High Street.
I think though the corollary of this, is that if you need a few thousand to buy a car and you have a good credit rating, then Zopa will be a better place to borrow.
Don’t believe me, but read this article in the Daily Mail about a lady, who wanted £5,000 for a car!
What Do We Do With the Irish Problem?
At times, I think the euro is a good idea. But to be fair, it will only work, if everybody acts as a team and plays the same way and to the same objectives. But Greece and now Ireland have taken advantage of the rules to play the game their way. Robert Peston wrote a very good piece on his blog yesterday and got right to the point.
Ireland has got itself in this mess by pursuing an unsubstanable property bubble and then bailing out the banks and the builders with loans from the European Central Bank.
But what started it?
For more years than I can remember, Irish thoroughbred breeders got it easy in the region of taxes. There were so many crazy rules, such as stallion fees being except of tax and that is why all the best stallions outside Middle Eastern ownership are in Ireland. And when it came to sell yearings and fials, did English breeders get the price their horse deserved? Sometimes but not always! In fact because of the racehorse tax situation, Tattersalls, the auctioneers, thought about moving to Ireland.
In fact you might argue, that the parlous state of racing and breeding in the UK, France, Germany and Italy, is down to the Irish and their feather-bedded industry!
But it’s not just horse owners and breeders, that get this treatment.
Irish corporate taxes are out of line with the rest of Europe and consequently, many companies use Ireland as a legal way of minimising taxes.
This is wrong and European finances will not return to sanity until we all play by similar rules in the areas of budget deficits, corporate taxes, working practices andpensions.
But it will not be easy, as look at the problems, France has been having trying to put a modicum of sense into its pensions.
So to repeat Gladstone’s famous question. which of course was part of “If you solve the Irish question, the Irish change the question!”
So Ireland, you must change the question! Ireland has one of the most educated populations in the EU. perhaps their insistence on not needing the bailout is a good policy and the start of this process.
But remember too, we have extensive investments in the country and they have a lot in the UK, so perhaps if we worked together more in all sorts of areas, we might both do each other some good, despite past troubles.
The Anonymous Widower 