Investing to avoid inflation and instability

Jegersmart

Gordon2710 wrote: »

I do understand risk vs reward, but i'm not looking to make big profits off my small savings. (It would probably take me forever to make any serious amount of money off £8k.) I'm really looking for a better alternative to the bank to try to prevent my cash from dwindling because of global financial factors. Based on peoples suggestions I might be inclined to put £2k in gold, £2k in bonds, £2k in an ISA and keep £2k for easy access in a current account. Stocks and shares are probably out of the question with my lack of experience and available time to pour over prices and graphs. The suggestion to invest in myself does sound appealing but I don't think I'm capable of dealing with any more education. 18 years worth was more than enough!

I wouldn't touch gold with a bargepole if you do not like risk, because it is volatile and it is in many ways like investing in a single stock with similar risk profile. If gold is at 800usd per ounce in 3 years - how would your 2k look? It is true that gold is and has been a "safety play" in times of trouble but that doesn't mean your investment is safe - a totally different scenario.

In my view I would wrapper the whole amount (or the majority) in a stocks and shares ISA - the limit this year is 10680gbp. Within that ISA wrapper you can choose different funds that focus on the areas that you want to invest in. For you I would forget about gold and silver etc if you do not want too much risk and go for some solid income style funds like M&G Optimal Income and there are many more.

As others have pointed out you could also go down the even lower risk route and get some National Savings stuff that is linked to inflation.

I don't know if I mentioned it already, but I would really advise against having any large exposure to gold - at least unless you know what you are doing, how you wish to access the market and so on.

Good luck!

Jegersmart

basic-indicator wrote: »

Inflation robs people of Purchasing Power, same as a tax. Inflation is an invisible tax that is used to spend more than gov't takes in. Inflation of fiat money is easy when there are no hard assets backing the money.

Inflation transfers productivity and assets of workers to those who sit in chairs and create the fiat money (or loan it out).

Know some facts about inflation.

Inflation is caused by increase in money supply, either directly by taxpayers or by all the government and other entities that can do so as well. It is a tax in as much as the taxpayer is the only source of "money" as such, and we fund everything in one way or another.

Jegersmart

basic-indicator wrote: »

Money supply increases when the product and services final selling price increases.

What was money supply when Oil or petrol was $1 per gallon?

What is money supply when Oil or petrol is $4 per gallon?

Price rise = Inflation. Think about it.

In year 2007, nobody knew about $1 Trillion. Today everybody knows $1 Trillion = $1000 Billion.

No. Money supply rises through increase in population (taxpayers) and through debt, not due to "the product and services final selling price increases". I.e. the money supply increase causes the price rise rather than the price rise happening for no reason causing the increase in money supply.......^^

So the prices rise because there are more of us, and because debts allow us to create more demand than there was before so prices rise. When governments print money it has the same effect. This is a very basic view of course as there can be other supply/demand reasons for it but these are generally not long-lasting.

I am not sure how or whether it is possible to know "what the money supply was when oil was $1 per gallon" and in any case it cannot be relevant to this discussion as the question is incredibly naive and ambiguous.

know some facts? yes, that is certainly advisable.

imho, dyor.

Ark_Welder

Jegersmart, basic-indicator is the latest incarnation of a spammer that spouts a lot but knows very little.

Gordon2710

I am aware that inflation is a hidden tax which is why i'd rather not pay it by leaving my money in an underperforming bank account. As gadgetmind pointed out, the government is taking further debt to pay for previous debt and I can't see how that is ever going to end well. If the Americans start defaulting on their loans and Greece needs a second bail out followed by Italy, Spain and whomever else, then currency might start becoming a fairly useless commodity. This is what prompted me to think my savings might be more resilient to these external factors if they were in some other form. If the dollar goes tit's up and half the eurozone follows suit, we'll end up paying other people debts which is going to put the pound sterling under a lot of pressure. If other reputable governments can default on loans then surely that removes the element of security from government bonds?

Ark_Welder

'Default' does not necessarily mean 'never pay back'. Greece may default and not pay back all that was borrowed. A US default may just mean that immediate interest payments due are missed, but that they will be paid later.

This may be unpopular because it is unemotional: http://www.economicshelp.org/blog/uk-economy/uk-national-debt/

Gordon2710

Surely this is the start rather than the end. That graph of national debt as GDP didn't look like it was coming back down any time soon. If the government can't pay the bills with 40% of GDP as taxes and a further 60% as debt, how's this going to add up in the near future. Raising the debt ceiling is quite obviously going to make matters much worse and when further interest repayments overcome the government they are going to be in the same position as now but with even more debt.

DiggerUK

Gordon2710 wrote: »

....... Based on peoples suggestions I might be inclined to put £2k in gold, £2k in bonds, £2k in an ISA and keep £2k for easy access in a current account.......

.....The suggestion to invest in myself does sound appealing but I don't think I'm capable of dealing with any more education. 18 years worth was more than enough!

As gadgetmind has pointed out, why put money in a Cash Isa that is going to lose out to inflation.
Use the Cash Isa for your easy access, and move the spare 2K into the gold and NSI Index Linked.

At your age, investing in yourself should be limited to getting stoned, getting laid, and getting away with it.
Getting a job won't harm you either, best of luck on that score
..._

Ark_Welder

Gordon2710 wrote: »

Surely this is the start rather than the end. That graph of national debt as GDP didn't look like it was coming back down any time soon. If the government can't pay the bills with 40% of GDP as taxes and a further 60% as debt, how's this going to add up in the near future. Raising the debt ceiling is quite obviously going to make matters much worse and when further interest repayments overcome the government they are going to be in the same position as now but with even more debt.

The UK does not have a debt ceiling - that is the US. The UK Government is paying the bills. If it was not then it would already be in default: we would all have heard about it.

How it adds up in the near future is likely to be slow/no growth, occasional mild recession, paying back debt. A mildy deflationary environment, perhaps - this being the danger that QE was meant to address given the low base rate. Also remember that approximately £200Bn of gilts is owned by....The Bank of England.

Think of the immediate future as being like the post-WWII austerity years, which eventually led to the Swinging '60s. Might just get a repeat of that in time for the 100th anniversary celebrations.

gadgetmind

When a company or country defaults on their bonds it's a bit more serious than when Joe Blogs is late on their credit card or mortgage because of Credit Default Swap contracts (CDSs) - as soon as a default happens, the bond holder gets their nominal and the counterparty gets the bond. No-one knows what a wicked web of CDSs we have as they don't need to be reported.

Systematic risk = big fat crash. See the wikipedia page on "credit default swap".