UK stocks doubts

Another_Saver

Prism said:

RobHT said:

Another_Saver said:

Apodemus said:

Another_Saver said:

It doesn't need to go on forever, but world GDP has been growing slowly and steadily since the dawn of agriculture and civilisation...

Indeed, but the OP's comment (and my response) was about exponential growth...

Personally, I don't need exponential growth in my investments, my aims are much more modest - underlying portfolio growth that matches inflation, while being able to take income (for either expenditure or reinvestment) of 3% of inflation-adjusted historic portfolio value.  With reasonable expectations, the OP will find a world of investment opportunities available...including many in the UK.

... That is exponential real growth of 3%.

What do you mean? If you are 3% over inflaction, you are growing around 6%, or not?
Not many companies pay 6% dividents, let's start from there...

A company is unlikely to grow much if it doesn't spend at least some of its profits back on the business. What is left might get paid out as dividends.

True, as Edgar Lawrence Smith and later Keynes pointed out retained earnings add an element of compound interest, but on aggregate the marginal return potential per £ of retained earnings necessarily tends to 0 otherwise no co would pay out a dividend, and the statistics are that higher yielding, and higher payout ratio co's have tended to outperform the general market on a total return basis. This is retrospective of course but I think in unusual/bubble times when the market seems to depart reality, old truisms become more relevant.

DireEmblem

The OP is missing a lot of key facts.  They mention an advantage of investing in UK companies would be the removal of currency fluctuation companies, but in fact a lot of UK companies are global so you cannot completely eradicate the risk.

Depending on your needs, you want to look at a good total return portfolio, or an interest bearing/dividend paying portfolio potentially later in life, so you don't have to think so much about which stocks to sell to raise funds to cover your retirement.

Don't put all your eggs in one basket.  Don't invest 100% UK, but don't invest 100% excluding UK either.  It sounds like the OP is barely into their working life/investment capabilities, so I would advise to find a cheap global equity fund, and contribute into that over time.

Thrugelmir

RobHT said:

Another_Saver said:

Apodemus said:

Another_Saver said:

It doesn't need to go on forever, but world GDP has been growing slowly and steadily since the dawn of agriculture and civilisation...

Indeed, but the OP's comment (and my response) was about exponential growth...

Personally, I don't need exponential growth in my investments, my aims are much more modest - underlying portfolio growth that matches inflation, while being able to take income (for either expenditure or reinvestment) of 3% of inflation-adjusted historic portfolio value.  With reasonable expectations, the OP will find a world of investment opportunities available...including many in the UK.

... That is exponential real growth of 3%.

What do you mean? If you are 3% over inflaction, you are growing around 6%, or not?
Not many companies pay 6% dividents, let's start from there...

Companies don't pay 6% dividends. That's simply how the broader market rates the companies prospects. The higher the dividend yield the less confidence the market has that the payout is sustainable in the longer term or will continue to grow. 

Another_Saver

For many individual UK co's yes there are currency risks, but at an index level, those co's are still a part of UK GDP and co's tend to be the part that does the trading, hence why they magnify the 30% of GDP that is imports and exports to 50% in the 250 and 75% in the 100. Over the longer term I don't see it as likely that currency fluctuations will materially affect the return.

Thrugelmir

Another_Saver said:

For many individual UK co's yes there are currency risks, but at an index level, those co's are still a part of UK GDP and co's tend to be the part that does the trading, hence why they magnify the 30% of GDP that is imports and exports to 50% in the 250 and 75% in the 100. Over the longer term I don't see it as likely that currency fluctuations will materially affect the return.

Only the trade conducted in the UK forms part of GDP.  Activity from overeas subsidaries and operations doesn't.   The listed mining sector being the clearest example. The risk being that dividends are declared and paid in US$. Expectations are that the $ is going to weaken.  Which will reduce returns to UK based investors. 

Another_Saver

Thrugelmir said:

Another_Saver said:

For many individual UK co's yes there are currency risks, but at an index level, those co's are still a part of UK GDP and co's tend to be the part that does the trading, hence why they magnify the 30% of GDP that is imports and exports to 50% in the 250 and 75% in the 100. Over the longer term I don't see it as likely that currency fluctuations will materially affect the return.

Only the trade conducted in the UK forms part of GDP.  Activity from overeas subsidaries and operations doesn't.   The listed mining sector being the clearest example. The risk being that dividends are declared and paid in US$. Expectations are that the $ is going to weaken.  Which will reduce returns to UK based investors. 

This is why globalisation is so annoying, 55% of UK plc is owned overseas and about the same £ amount of world ex-UK inc. is owned within the UK. The UK is the global financial centre z which is great, but I don't see us becoming like HK which is just a global centre... It's an awkward one.
To use mining as an example, even though Rio Tinto is on the LSE, almost all their tax bill is in Australia.
This debate could go on forever.

Thrugelmir

Another_Saver said:

Thrugelmir said:

Another_Saver said:

For many individual UK co's yes there are currency risks, but at an index level, those co's are still a part of UK GDP and co's tend to be the part that does the trading, hence why they magnify the 30% of GDP that is imports and exports to 50% in the 250 and 75% in the 100. Over the longer term I don't see it as likely that currency fluctuations will materially affect the return.

Only the trade conducted in the UK forms part of GDP.  Activity from overeas subsidaries and operations doesn't.   The listed mining sector being the clearest example. The risk being that dividends are declared and paid in US$. Expectations are that the $ is going to weaken.  Which will reduce returns to UK based investors. 

This is why globalisation is so annoying, 55% of UK plc is owned overseas and about the same £ amount of world ex-UK inc. is owned within the UK. The UK is the global financial centre z which is great, but I don't see us becoming like HK which is just a global centre... It's an awkward one.
To use mining as an example, even though Rio Tinto is on the LSE, almost all their tax bill is in Australia.
This debate could go on forever.

Appears that the US is likely to get tough on Chinese companies listed there. If so, will accelerate the growth of HK as a major centre. London will remain an important business centre. 

BananaRepublic

My UK listed trusts have done very nicely over the years thanks. It's true that the FTSE 100 is a bit of a stinker, but if you invest more widely, and I would argue more wisely, then you can do nicely. I could put forward a dumb argument that you should not invest in China because it's a fundamentally corrupt and undemocratic country with appalling human rights violations, and such a system cannot be stable in the long term. And I'll probably be proved wrong. Most such simplistic arguments will be wrong, or misguided. Diversify, research markets and sectors, invest in a way that you hope is wise. You can't predict the future, but you can mitigate against, and benefit from, the unforeseen.

Brexit is a potential hiccup in the near future. I don't see us crashing out, but you never know. And we are up to our eyeballs in debt thanks to Trumps best mate, Coroni. That makes us weak, and if another shock were to come along in the next few years, it could be nasty.

arnoldy

There are good opportunities in the FTSE250, Small Cap, Fledgling and AIM. For the private investor you can buy the individual shares on dips at very keen prices (which ITs and Funds can never do), hold in astonishingly generous tax wrappers,  and your charges can be extraordinarily low.
Just watch the spreads on some smaller shares.
The FTSE250 has averaged a total return of 11% - over 20 years your money is going to grow 8X (or 4.7X if you assume 3% inflation).
America is a must for investors - dynamic and growth but watch the charges - FX and withholding taxes.
The Rest Of the World in my research has not lived up to the hype, yes regions have done well for periods but difficult to pick without massive hindsight.

Another_Saver

arnoldy said:

There are good opportunities in the FTSE250, Small Cap, Fledgling and AIM. For the private investor you can buy the individual shares on dips at very keen prices (which ITs and Funds can never do), hold in astonishingly generous tax wrappers,  and your charges can be extraordinarily low.
Just watch the spreads on some smaller shares.
The FTSE250 has averaged a total return of 11% - over 20 years your money is going to grow 8X (or 4.7X if you assume 3% inflation).
America is a must for investors - dynamic and growth but watch the charges - FX and withholding taxes.
The Rest Of the World in my research has not lived up to the hype, yes regions have done well for periods but difficult to pick without massive hindsight.

...I just buy the 250 as an index.
You can't assume it's "just" going to do 11% in future. The real return to date has been made up of (on phone, numbers from memory so not precise) 3.3% dividend yield, 3% capital concentration,  2% real earnings growth and about 0.5% expansion relative to GDP. Even with the recent rise the valuation is still attractive but I don't see the same magnitude of returns being repeated. If we get a 3% yield and 2% real earnings growth I see the size relative to GDP at least holding and at least net zero capital concentration out to 2050, so at least a 5% real total return seems reasonable, which could be a ridiculous 8% if capital concentration continues at its pace to date (net acquisitions of co's in the index).
The US is not a must when it's in dot com bubble valuation territory and the $ is this high.