Is Cash a Better Prospect Than Property If......

JayBrun

Thanks everyone for taking the time to post and help me out on this.

Very kind, considerate and courteous of you.

reweird

Cash isn't King, but property is my Castle. And my BTLs my Kingdom.

chucknorris

JayBrun wrote: »

For someone in the fortunate position of having substantial savings, at the moment earning very little on deposit, what could be the best course of action to take assuming, optimistically perhaps, there is some hint/warning that everything is about to collapse around us.

Cash seems to be the main casualty of inflation so assuming that rampant inflation would drastically hit the ongoing value of any compensation, and/or 'some' of the savings disappearing due to limited compensation, would property be a better option than sitting on the cash.
.

The danger of holding cash is capital depreciation. Residential investment property has been very profitable for me but the problem I have with holding (residential) property is the hassle, which as far as I'm concerned was fine at the beginning and I can put up with now but I really don't want to be in this position far into my 60's. When I do sell up (probably in about 8-12 years?) I will have to decide where to invest the money. I have so far considered:

Ground rents on residential property - good protection against capital depreciation, far less input than being a conventional landlord. However I have heard that you are forever chasing leaseholders for payment so I don't think that would suit me I would find it too annoying.

Commercial property - good protection against capital depreciation, far less input than residential counterpart with typical leases being 15-25 years with 5 year reviews and very importantly being on a FRI (full repair and insuring) basis. Tend to deal with fellow property professionals rather than residential tenants which again is good. However I need to do more research into the potential downside of voids, this could be a very significant risk (I would tend to go for prime locations and tenants which would mitigate that risk to some extent)

Shares/corporate bonds - I would have some money in these but I don't see it as my main investment, more of a subsiduary investment.

Fixed rate savings bonds - Although again I would have some of these I do not see it as anything but a minor part of my portfolio due to capital depreciation.

At this early stage I'm probably leaning towards a portfolio of (excluding a pension of about 20k income):

50% commercial property
20% shares/corporate bonds
20% residential property (retain one investment property)
7.5% fixed rate savings bonds (possibly some with penalty access just in case)
2.5% cash in instant or short term bonds

If anyone has any other suggestions (other than PM's) I would be glad to hear what they are.

HAMISH_MCTAVISH

JayBrun wrote: »

Thanks everyone for taking the time to post and help me out on this.

Very kind, considerate and courteous of you.

OK, on a more serious note then.....

Your premise involves failure of a major UK bank, and the govt walking away from it's guarantees to deposit holders.

What you don't seem to realise is how that's completely impossible in isolation because such an unsupported failure of one major bank would take down ALL banks and the entire UK financial and economic system with it, and most likely that of Europe and the US as well.

So if it did happen, the last thing you'd be worried about would be pieces of paper with pictures of the Queen on one side. Food, fuel and surviving the coming end-of-days level economic and social collapse would be far more important.

Having a second property would do you little good as chances are it would simply be taken for use by whomever had the biggest gang and most weapons. Likewise precious metals are totally useless in such a scenario, because after the first winter without power and food culls off a third of the population, gold and silver will be readily available from the homes of the dead.

You're asking for an investment to survive Armageddon..... Hence why you got answers about Zombies. It doesn't exist.

The closest thing I can think of is to buy farmland in an isolated and defensible position, learn to farm, and make sure you have plenty of fuel, food, salt and firearms. Or perhaps to buy a yacht and sail away to somewhere warm and with access to citrus fruits.

kabayiri

chucknorris wrote: »

...
If anyone has any other suggestions (other than PM's) I would be glad to hear what they are.

My family, guided by one of my siblings, own a few properties in Canada.

Some of this property has done extremely well in recent years. I think the local people there have noticed an uptake in interest in the more expensive property from people in Western Europe. It's hard to know for certain though.

I wouldn't say Canada is the only place where property is still a good option, but it's worth a look. It would help take away some of the reliance on the UK economy.

JayBrun

HAMISH_MCTAVISH wrote: »

OK, on a more serious note then.....

Your premise involves failure of a major UK bank, and the govt walking away from it's guarantees to deposit holders.

What you don't seem to realise is how that's completely impossible in isolation because such an unsupported failure of one major bank would take down ALL banks and the entire UK financial and economic system with it, and most likely that of Europe and the US as well.

So if it did happen, the last thing you'd be worried about would be pieces of paper with pictures of the Queen on one side. Food, fuel and surviving the coming end-of-days level economic and social collapse would be far more important.

Having a second property would do you little good as chances are it would simply be taken for use by whomever had the biggest gang and most weapons. Likewise precious metals are totally useless in such a scenario, because after the first winter without power and food culls off a third of the population, gold and silver will be readily available from the homes of the dead.

You're asking for an investment to survive Armageddon..... Hence why you got answers about Zombies. It doesn't exist.

The closest thing I can think of is to buy farmland in an isolated and defensible position, learn to farm, and make sure you have plenty of fuel, food, salt and firearms. Or perhaps to buy a yacht and sail away to somewhere warm and with access to citrus fruits.

I was aware of the consequences of a major bank being allowed to fail with the inevitable run on the remaining Institutions and the collapse of the Banking system without which normal 'economic' activity and life as we know it would cease.

The FSCS, an Independent body, offers a limited 'guarantee' to depositors and the money for such an enormous bailout would have to come from the government, which to my knowledge has given no such undertaking.

I suggested two options - one which you have concentrated on, hopefully the least likely, being for the government to walk away from the compensation issue.

Since the government would do its utmost to retain a functioning banking system I assume my second option is more likely and that full or substantial compensation would be paid in order to retain at least some confidence in the system.

I would have thought to give that level of compensation, they would have to print a lot money with presumably a major effect on inflation which is what motivated my question.

I'm not asking for 'an investment to survive Armageddon' since in practical terms there isn't one. With compensation paid and presumably a functioning banking system still in place is there a possible strategy that 'could' be better than simply leaving cash in the bank to be eaten away by inflation - hence the suggestion of property which could be convenient for me.

Or are you suggesting that if there is a major collapse it may not matter if the government bailed the banks out or not because it may well not work and we would face Armageddon.
Even if that is a definite possibility it is surely prudent to assume it equally it may not occur and therefore consider whatever practical steps are possible now or at least sooner rather than later.

I appreciate any suggestions may be little more than guesswork but at least property should retain some value whereas with hyper inflation a 'fixed' amount of cash could quickly become worthless - I don't know hence the question.

Many thanks for taking time and effort - it is appreciated.

HAMISH_MCTAVISH

JayBrun wrote: »

Since the government would do its utmost to retain a functioning banking system I assume my second option is more likely and that full or substantial compensation would be paid in order to retain at least some confidence in the system.

Correct.

I would have thought to give that level of compensation, they would have to print a lot money with presumably a major effect on inflation which is what motivated my question.

Only partially correct.

Inflation basically happens in two ways.

1. Demand pull inflation. Where an excess of money chasing too few goods causes price rises until the supply/demand balance reaches equilibrium. Basically the market is using price to ration the supply of goods.

2. Cost push inflation. Where external influences drive up the cost of supply. This could be legislative such as green energy initiatives, taxation based such as the rise in VAT, or imported such as energy or commodity price rises either due to shortages or a variation in exchange rate, or both.

Given that QE is only used to address a shortage of money in the system, it's not necessarily all that inflationary.

In other words, if a major banks fails because it can't access liquidity, which is what a run on the bank actually is, replacing that liquidity with a newly printed batch of money is not in and of itself actually inflationary, provided the liquidity is subsequently withdrawn in an orderly fashion to return the market to equilibrium or the money sits locked up in some other way (rebuilding bank balance sheets, for instance) such that the quantity or velocity of money circulating in the system does not significantly increase.

After all, none of the depositors who are rescued actually end up with any more money than they started out with.

To think of this simply, assume a bank vault caught on fire, and all the money within it burnt. If you then printed money to replace it, there is no inflationary effect.

Or more relevantly, think of a bank vault where someone loses the key. If you then printed money to replace it, there is still no inflationary effect so long as when the key is found the original money is destroyed.

What IS likely to be inflationary however, is not the actual printing of money itself (that's a symptom, not a cause), but rather the currency devaluation which would result from such a major hit to the global confidence in the UK economy as a result of a large UK bank failing.

I'm not asking for 'an investment to survive Armageddon' since in practical terms there isn't one. With compensation paid and presumably a functioning banking system still in place is there a possible strategy that 'could' be better than simply leaving cash in the bank to be eaten away by inflation - hence the suggestion of property which could be convenient for me.

Or are you suggesting that if there is a major collapse it may not matter if the government bailed the banks out or not because it may well not work and we would face Armageddon.
Even if that is a definite possibility it is surely prudent to assume it equally it may not occur and therefore consider whatever practical steps are possible now or at least sooner rather than later.

I appreciate any suggestions may be little more than guesswork but at least property should retain some value whereas with hyper inflation a 'fixed' amount of cash could quickly become worthless - I don't know hence the question.

Many thanks for taking time and effort - it is appreciated.

Property (or almost any other asset) would be a better bet than cash in genuine hyper-inflation.

But printing money under the circumstances that would cause the UK govt to do so isn't what will cause hyper-inflation.

And in the event of a less serious but more likely set of events, property could perform worse than cash in the short to medium term.

I'm about 75% in property, by the way, but then I see most of the more negative scenarios as being amongst the least likely of possible outcomes.

Batchy

I hate to think what would happen... and what ifs... because where do you draw the line worrying... just get on with it, hoping for a disaster, is just wrong, as no one will benefit except those who knew it was going to happen, and positioned themselves before hand.

But basically... whether you buy or don't if there is a massive huge problem then paying your mortgage will be the least of your worries, staying alive would be my top priority!

JayBrun

Batchy wrote: »

I hate to think what would happen... and what ifs... because where do you draw the line worrying... just get on with it

Many suspect that we may face significant problems in the near future, including Mervin King, someone whose thoughts I am not inclined to totally ignore.

It's not a question therefore of worrying, but of a question of being prepared as best you can in your particular circumstances. Always a good philosophy. Planning ahead isn't the same as worrying.

Batchy wrote: »

..hoping for a disaster, is just wrong, as no one will benefit except those who knew it was going to happen, and positioned themselves before hand.

Like most people I'm not hoping for disaster, something you might glean from reading my post.
You imply that I am trying to take advantage of the situation whereas I'm simply trying to protect what I've spent my working life building up.
Like others in years gone by, I saved by limiting what I spent and limited borrowing as best I could.
If the saving habit hadn't died a number of years ago and been replaced by a desire for immediate gratification and borrowing as if there was no tomorrow, at least some of the personal financial problems would not be quite so great.

Batchy wrote: »

But basically... whether you buy or don't if there is a massive huge problem then paying your mortgage will be the least of your worries

I'm not sure how much of my post you've read but since I referred to buying a second property for cash you may correctly assume I do not have and will not have a mortgage to pay off.

chucknorris

kabayiri wrote: »

My family, guided by one of my siblings, own a few properties in Canada.

Some of this property has done extremely well in recent years. I think the local people there have noticed an uptake in interest in the more expensive property from people in Western Europe. It's hard to know for certain though.

I wouldn't say Canada is the only place where property is still a good option, but it's worth a look. It would help take away some of the reliance on the UK economy.

Thanks but long distance ownership is something I wish to avoid. I am not really looking for 'high performance' now merely consolidation (boring but true).