Hey friends,

Happy November to you! I've managed to come up with quite a bit to write about this week and once again delve into finance related matters. When I started the newsletter it wasn't my intention to go on about money so much as I do but I really enjoy writing about it so it will likely become a mainstay of these emails. Still, I mustn't forget my first love - DIY, so let's start there:

🚼 The Nursery

Some decent progress on bedroom number 2. I ripped out the cupboard in the alcove, removed the radiator, pulled off the skirting and window board and then steamed the wood-chip wallpaper off the walls and ceiling.

I was concerned the two walls with polystyrene behind the wallpaper would be difficult but they turned out to be the easiest, and didn't even need the steamer.

I had a bit of a panic with the radiator as it started leaking on the pipe - the hardest place to fix because it can't be isolated. Luckily a bit of tightening of the nut solved the issue, otherwise I would have had to undo it, lift the valve up just enough to get PTFE tape in there but not too far as to create a water fountain.

As I suspected, the wall next to our current bathroom is new and the plaster is good. This was due to the bathroom being moved to what is really the landing and this new wall was set back making the bedroom smaller. As we're returning the bathroom to it's original location (the little bedroom), ideally I'd move the wall back again by about 12" but I'm not sure it's worth the bother, especially as the plaster is good shape and the bedroom is plenty big enough for a child or teenager's room. Heck, Abi and I were in here with the baby for 6 months.

However you might be able to see in the corner that there's some boxing in which is for the bathroom pipes so I think I'll get everything painted with the new lights etc, move the boy in, then get the bathroom moved and finally I'll get rid of the boxing and do skirting and carpet.

It's nice to think that we can do one room at a time from start to finish but it doesn't always work out like that.

The only other hiccup I can foresee in this room is the radiator pipes which will need to move inwards when I attach the insulated plasterboard. It wasn't an issue in the other bedroom because it was the end of the pipes so they were reasonably flexible. I'll find out how moveable they are this week when I lift the carpet and floorboards!

🎤 Interview

I got to try out my studio properly this week as I was interviewing (via Zoom) a very interesting person - to be revealed soon hopefully.

It would be a whole lot better if we'd both had a proper webcam but the audio is decent.

📉 Loss Aversion

The Autumn Budget was pretty uneventful, not a lot to write about there, mercifully perhaps. But there was some furore over what wasn't in it - the government decided not to reinstate the £20 a week uplift to Universal Credit...which got me thinking about loss aversion.

---

Let's play a game.

Scenario 1

I come up to you in the street and show you a fiver in one hand and a tenner in the other and say 'you can either have the fiver now, no questions asked, or we flip a coin for double or nothing.' Which would you choose? (Assume you don't think I'm a weirdo that you want to get away from as fast as possible and you believe the coin flip will be fair).

Scenario 2

I come up to you in the street and randomly give you a fiver and wander off. You then walk about for a few hours with that fiver in your pocket feeling pretty good about it. I then bump into you again and suggest we flip a coin for double or nothing. What choice would you make this time?

When these tests have been run it seems that more people are likely to try their luck in Scenario 1 than in Scenario 2, even though the only difference is that you held on to that fiver for a few hours in between meetings. The key is that in those few hours the fiver became yours and you find that you don't want to lose it.

---

Now, I don't have an opinion of whether the UC uplift and its subsequent withdrawal was right, wrong, fair or unfair and it's besides the point because I bet if the £20 uplift was never granted people wouldn't feel so hard done by. In essence they feel like they've lost £20 a week rather than having gained it for the last year or so.

This is loss aversion and it's a very strong emotion in all of us where we fear losing what we already have. While this is a more blatant case, the government are experts at taxing us more while avoiding triggering this feeling of loss by stealth taxing us instead.

The personal allowance will be fixed from next tax year all the way until 2026 and the same goes for the higher rate tax band. That's a 5 year tax band freeze during which inflation will increase our outgoings. Take a look at this table for the impact of just one year:

In this example I've gone with the projected inflation rate of 4%, meaning your costs will go up by that much over a year. However I've been generous and given you a 4% pay rise too. All good right? Well no, because the personal allowance hasn't changed so your net income (link to take-home salary calculator) has increased by a lower 3.39% and worse still, the amount you can save has only increased by a tiny amount.

And here comes the biggest kicker - your savings will likely be chasing assets (stocks, property etc) and the inflation rate of these has been far higher than 4%.

Are you up in arms over this? No, I thought not, and that's because your nominal pay has stayed the same or as in the example above, increased. However if your boss reduced your pay by even 0.5% I bet you'd be upset, because that feels like a loss.

It's worth reading up on loss aversion because it can affect our investing habits and why I was so keen to stress the risk of not taking any risk in my stocks investing newsletter. Sunk cost fallacy is another, somewhat related, irrational human emotion also worth reading up on.

---

Tenuous link time! Sometimes when I watch a nature documentary and see an alpha animal defend its territory or harem against another, it seems (to me at least) that the defending animal fights harder than the challenger. The outcome is fair - the winner gets the territory/ladies and the loser doesn't but the current alpha probably feels they have something to lose while the challenger is just trying their luck and that might change how hard each of them fight. I reckon this is likely to be loss aversion in action and probably shows how deep in our evolution it stems from.

🤓 Game The System (Pensions)

While the Budget was a dull affair, there is a finance related matter bubbling away in the background that you might like to know about and that is the government increase of the private pension access age from 55 to 57 which will come into force in 2028. Boooo!

However the preliminary text seems to suggest that any pension scheme that states 55 as the age of access will keep that benefit whereas those that state 'private pension access age' or something of that nature won't qualify and will default to 57. So while we're waiting for the text in full to say for sure, it appears that you can open an account with a provider that states the lower age of access to keep it, even if you turn 55 after 2028. You won't need to move all your pension of course, just enough to cover your expenses for those 2 years. After some preliminary research I believe Vanguard doesn't meet this but Fidelity might. Of course this is only of interest to those of us under 50 who might want to retire at 55/56 and have access to our pensions from then. The other, less tax optimal way, is to fund those earlier years from an ISA instead.

It's probably worth waiting to hear more before acting but I figured a few of you would be interested. I'll let you know when I find out more. There's more on the topic here and probably better explained.

☀️ Beat The Blues

As you know, I love summer. I love the greenery, the long days and no one looks at me funny for my obsession with wearing shorts.

Winter on the other hand sucks for me so since the clocks have just gone back here are my tips for anyone who suffers winter blues/seasonal affective disorder and has been working for me.

1. Get a lightbox, like this one, and sit by it for half an hour or so each day.
2. Take Vitamin D tablets. Unless you're able to get outside for a good amount of time each day, it's reckoned by scientists that we are pretty deficient in Vitamin D here in the UK in winter, especially if you're darker skinned.

I of course am off to sunnier climes shortly and will be travelling this time next week so there probably won't be a newsletter for a while.

👋

Hit "reply" if you've got any comments on this week's newsletter – otherwise I'll see you next time. Have an epic week :)

P.s. If you think a friend will enjoy this newsletter, feel free to send them this link where they can sign up.

P.p.s. You can find all previous newsletters here.