Safer investments

dunstonh

Using Lipper as the data researcher, £1000 invested 20 years ago (to 28th May 2006) would now be worth £1782 if the Halifax liquid gold account was used. Inflation would have required that £1000 to be worth £2011 to retain it's value

Looking at longer term, the graph shows very little in it between cash and inflation with occassional times when one is marginally above the other. Most of the difference (above) has occured in the last 5 years but that is almost certainly down to the fact that Liquid Gold has became obsolete as a viable account to benchmark against 5 years ago.

Also, what is RPI nowadays? With Labour playing around with what is monitored and leaving out some key things, has cash outpaced "real" inflation? I doubt it.

Debt_Free_Chick

dunstonh wrote:

Also, what is RPI nowadays? With Labour playing around with what is monitored and leaving out some key things, has cash outpaced "real" inflation? I doubt it.

That's a very good point.

In addition, there are some "geniune" changes to the items which make up the index, to reflect what "the average" consumer buys. So, for example, pipe tobacco disappeared from the index years ago and white goods, electricals, PCs etc have all been added.

Bearing in mind that the cost of white goods has generally fallen (relatively speaking) that produces downward pressure on the index. This masks the actual increase of those items that have risen in value, over the same period.

Fascinating guide to what's in this year's basket of goods here - jump to page 10 for what's in, page 11 for what's out and page 23 for the "typical" basket.

I'm straying OT now, so probably out to "button it"! :shhh:

Oompa_Lumpa

Thanks both of you, re your explanations re the inflation figures.

Dunstonh, at the risk of going offtopic here (even further than I have already digressed!!!) what would your reaction be to a client who came into your office and said that they were going to borrow against the equity in their home and invest it according to your recommendations?

Before you answer, I know it depends on the individual etc etc, but I guess what I am asking is how likely do you think that in any given year a good range of investments would give a better return than the interest they would be paying on the amount they are using to invest?

The above question came into my head when I was typing my bit about house prices in NI, because effectively that is what new B2L investors are doing at the moment. Though I am aware that any recommendations you gave to paying clients wouldn't include B2L as an investment vehicle.

dunstonh

Dunstonh, at the risk of going offtopic here (even further than I have already digressed!!!) what would your reaction be to a client who came into your office and said that they were going to borrow against the equity in their home and invest it according to your recommendations?

I sit here thinking about what I would say as it isnt the sort of question that you often get asked. My first response would be don't do it. However, you see people doing buy to lets and borrowing to do those and there is little difference between borrowing to purchase a buy to let and borrowing to invest using other assets.

I have enough investments to repay my mortgage but I continue to leave the money invested as the returns are beating the interest paid on the mortgage. So, in a roundabout way, I am doing what you say.

Like any borrowing to invest, whether buy to let or otherwise, you have to be a high risk individual or have other means to repay the money if it goes wrong. So, the average person, I would put them off the idea. I would also put off anyone who was not an experienced investor. If you borrow money to put in a bog standard insurance company investment fund then you are asking for trouble. You would need a proper portfolio and ongoing monitoring to give yourself the best of chances. That usually means paying someone to do it or knowing what you are doing with some expertise.

The above question came into my head when I was typing my bit about house prices in NI, because effectively that is what new B2L investors are doing at the moment. Though I am aware that any recommendations you gave to paying clients wouldn't include B2L as an investment vehicle.

The right buy to let with the right rental yields and growth potential are fine. The same principle applies to investing. Get the right investments/property and you could do well. Get it wrong, and you could lose money.

Putting me on the spot, I would say no, don't borrow to invest. However, if you understand the risk, potential and are willing to take it seriously, it would be wrong to say no when you see people doing exactly the same thing with another asset class every day.

Good question. Difficult answer.

Oompa_Lumpa

dunstonh wrote:

Good question. Difficult answer.

Thanks for the comprehensive answer, and I'm impressed that I managed to ask a question that you had to sit down and think about. :-)

Pobby

Hi dunstonh,I read in one of your posts that some of your clients are making returns in double digits.Would that be that they are in riskier kinds of investments or not?Also I see you have the same sort of take as me where it comes to buying property as an investment.

dunstonh

Pobby wrote:

Hi dunstonh,I read in one of your posts that some of your clients are making returns in double digits.Would that be that they are in riskier kinds of investments or not?Also I see you have the same sort of take as me where it comes to buying property as an investment.

Not risky at all. Indeed, most are cautious to medium risk. The returns if invested prior to stockmarket crash have the cautious ones coming in around 9-10% p.a. with the medium risk ones coming in around 10-15% p.a.

I have made no secret of the way I invest. Diversification across the sectors. I have a portfolio report on my desk going out in tonights post for a client who invested in 2001. Its £53k invested across 10 funds. Its only got 31.3% invested in equities with 41.2% in bonds, 12% cash and 15.4% property. That has averaged 9.6% p.a. as a portfolio over 5 years with the worst fund losing 1.2% p.a. average (North America) and the best fund giving 31.7% per annum. It couldnt have been invested at a worse time really just before the worst part of the crash so to turn round 9.6% p.a. average including the crash is very nice. 3 year annualised is 13.5% and 1 year is 13.7% (including the recent wobble). Last year the worst fund lost 2.3% (Internetional bond) and the best gained 70.7%. YTD performance has 5 of the 10 funds in negatives (Japan taking biggest hit) but the overall portfolio up 1.6%.

That portfolio would be classed as cautious with only 31% in stockmarkets. I rarely see adventurous individuals. I tend to deal more with people who have had tied agent arranged investments in the past that have done poorly or more commonly stuck in a single fund investment like a balanced managed, distribution fund or a tracker. More often than not, most are invested above their risk profile. If I was to put a trend on the investing attitudes of the people I have dealt with over the last few years, it would aim for consistency rather than spectacular volatility. The portfolio above reflects that and for many people it would be too cautious but for this individual its spot on.

Pobby

Thanks dunstonh.That`s a fantastic return!To do that through the stock market crash is,in my mind,impressive.I went in just before the crash{duh} but on a feeder fund ,£14k both for myself and my wife,I think £14k at 6300 points and £14k at closer to 4000 points.Just cashed in at 6000 points giving me a return of 10% in total over 5 years.All on the advice of,well never mind the name of the bank.

Thanks for sharing the above breakdown.Sure wish you were my IFA as I have a fair bit to do something with.