Collapse of Sterling

colinscott

My disabled son has compensation of £1.5M with the Court of Protection. How might his spending power be affected by the Government's proposal to print money? Could anyone comment on the possible consequences for him if there were a run on the pound and a collapse of sterling? Aside from switching currencies now and spreading the risk is there any way to safeguard his position?

Col

realaledrinker

troll alert

Masomnia

I'll assume you're not a troll

With a sum of money as huge as that you really are best off seeing an Independent Financial Advisor (as opposed to a tied sales rep in a bank, masquerading as an advisor). Few people here have enough knowledge and expertise to advise you on a sum of money like that, and those who do can't give you good advice without knowing the full extent of your circumstances to assertain your risk profile.

Speculating on currencies is a very very risky thing to do, even if you know what you're doing. If you look at the options, you have the dollar, and the US has had to promise huge amounts of government spending to go along with the huge budget deficit they already have. The pound hasn't fallen as much against the euro, and in any case the eurozone has just announced it is in recession which doesn't look too promising. Icelandic krona may give you a good return in a few years, but look at how terrible their economy is at the moment, too much of a risk in my book.

There are better ways to hedge against inflation IMO.

colinscott

I don't know what a troll is, honest. Sounds bad. I rarely do forums. The last time I went on one, I got the same.

I intend to speak to a financial adviser, but I want to hear other's views first because I suspect it may be an extraordinary question for him.

This forum seems particularly concerned with the bank's compensation schemes, but given the fall in sterling in recent months and George Osborne's risky remarks, I am wondering how I can protect my son's money from a run on the pound. I don't want to speculate on currency but rather hedge my bets. Something safe and secure. What about Index-linked government stock, for example?

Col

jon3001

Masomnia wrote: »

Speculating on currencies is a very very risky thing to do.

Compared to what? I would have said things likes investing in international small companies (also has the currency exposure) and shorting were very high risk. On that basis what sort of downside would you potentially expect in buying a reserve currency (e.g. dollar/euro) or a hard currency (swiss franc/yen)?

Masomnia wrote: »

There are better ways to hedge against inflation IMO.

Any examples? I'd list: index-linked bonds, commodity futures and rental property (although maybe not at the current point in the cycle).

purch

I think the most important thing, is to decide exactly what it is you are looking to hedge against.

I would assume that any form of speculating with a sum such as this, which needs to provide income for a lifetime would be off the table.

If the hedge is intended to be against loss of purchasing value due to Inflation then investing in Index Linked Gilts would be high on the list of the low/non speculative.

Hedging against a Collapse in the value of Sterling against other major Currencies is far more complex and speculative, and in many ways unnecessary as a successful hedge against UK Inflation should compensate for this and keep buying power in GBP terms, in not in other currency terms.

dunstonh

I intend to speak to a financial adviser, but I want to hear other's views first because I suspect it may be an extraordinary question for him.

It shouldnt be for an IFA. We are used to dealing with high net worth clients. If its a tied sales rep then they would probably wet themselves with an amount like this.

but given the fall in sterling in recent months and George Osborne's risky remarks, I am wondering how I can protect my son's money from a run on the pound.

Sterling was too high to start with so a drop is not undesirable. Plus, historically swings like this occur. Any option you want to take that directly looks at currency fluctuations involves risk. Potentially more risk than investing on the UK stockmarket.

Does your son intend to live abroad in future?

Reaper

colinscott wrote: »

How might his spending power be affected by the Government's proposal to print money?

Actually the government is not proposing to print money. They are suggesting borrowing more which is a very different kettle of fish.

Sterling has already fallen. Although people seem to be assuming it will fall further that is not a foregone conclusion. It will only fall if the UK economy does worse than expected compared to other ecomomies, and/or the government cuts interest rates more than expected. Current predications are already priced in.

I am not expecting a run on the pound, but if it did happen then you can expect inflation to start to rise because imports including raw materials would cost more. Even that is not necessarily a problem provided the return you can get on your savings/investments beats inflation. For example a typical response to increasing inflation is to raise interest rates (if economic conditions allow).

As others have said you really need professional advice to place a sum that large. One possibility would be to invest in funds worldwide. A currency fall in one country would then be balanced out by a rise elsewhere. A simple form of hedging.

RayWolfe

colinscott wrote: »

given the fall in sterling in recent months and George Osborne's risky remarks, I am wondering how I can protect my son's money from a run on the pound.

It's interesting how extreme publicity to a normal occurrence can raise fears in people that are so utterly unnecessary.
Yes, petrol could cost more, as could t-shirts (£3.50 instead of £3.00 from Asda) but really it will not be the end of the world. Sterling has traded from £1 to the dollar to over £2 to the dollar over the last 20 years without major problems to ordinary citizens. But unless you plan to live abroad, the effect of sterling variations are minimal.
Stop worrying. You need protection from inflation, not currency risk.

eeja

Reaper wrote: »

Actually the government is not proposing to print money. They are suggesting borrowing more which is a very different kettle of fish.

Tell me Sir, if the government are not going to print money where is the £100 billion they intend to borrow come from ? The banks dont have it. The public dont have it . Industry don't have it....and even if they were prepared to lend it, they would expect an interest rate far higher than the miserable record low ones offered by the BOE who have intentionally lowered rates to record and historically low levels be able to borrow cheaply !

The IMF ? Not been approached (yet). The ECB ...No way as Brown rejected the ECB and the Euro. The USA ? No way . They charged us for every bullet plane and ship lent to us in World War 2 ( it was LendLease remember not a gift to a friendly country)and then forced Bretton Woods on us to destroy the Empire , Imperial preference and the Sterling area and to guarantee US domination of not only world trade but also world finance. [Cordell Hull]
Surely Brown has no alternative but to print money ?

gozomark

where from ? the countries with large trade surpluses - China, Japan, Middle East