How should I invest my money in 2009 | 2010?
Most Brits must have wondered how to get a return on their savings in
2008. Many will have watched in dismay as banks went wobbly, share portfolios
were clobbered and interest paid on their savings accounts ran dry.
Could we have invested better over the last few years?
Since 2006, gains could have been made by:
1) Selling a house rather than buying in 2006|7
shows average UK house prices since 1975)
2) Swapping pounds for dollars then swapping back later
(Graph shows how many dollars a
pound bought over 3 years)
3) Swapping pounds for euros then swapping back later
(Graph shows how many pounds a euro
bought over 3 years)
4) Buying gold coins in 2006 and selling earlier this year
(Graph shows value of one ounce
of gold in pounds over 5 years)
I suspect few of us went for this.
So, how could we invest better in 2009 and 2010?
First things first.
If today's financial crisis teaches us anything, it is that the mass media
won't help us invest wisely. Taking tips off the TV is like popping pills
only to later discover the full horror of the potential side effects.
In fact, when media pundits tell us that everyone else is piling into
a particular investment (like buy to let properties, or dot.com shares)
history often suggests its a very good time to be doing the exact opposite.
My advice to myself for 2009|10 is.... RELAX:
1) Don't be fooled into thinking the downturn is over. House prices and
shares are set to fall further. *1
2) Hold your cash in a safe place where you can access it immediately.
3) Clear existing debts and avoid taking on others. *3
4) Avoid buying bonds (ie. government, bank or company IOUs) until a realistic
rate of interest is being offered on the latest issue.
5) Do some social lending somewhere like Zopa.
As reliable borrowers look to clear high interest credit card debt, your
offers of a tenner here and there at 10% interest will look attractive.
In particular, bear in mind that we are currently in a special period.
Downward trends have been temporarily arrested by something called quantitative
easing. This is the process by which central banks in the UK and US
are creating money. This is being used to prop up all sorts of investments
for which demand has dried up. This has arrested the crash but is not
a credible long term tactic.*4
Ends | 4 July 2009 | The Leg
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*1 Don't even go there until you see repossessions
approaching 75,000 over the last 12 months or the FTSE 100 nosing below
2500 points. Rising unemployment doesn't create demand for mortgages,
goods and services.
*2 Savings account interest rates are liable
to rise steeply in 2010. You won't want your savings committed to a long
term bond promising low rates of return at that point.
*3 Servicing debt is going to get more and
more expensive as banks are forced to get themselves on a more stable
*4 Continued forced inflation of the money
supply could result in a currency crisis. Interest rates would have to
be hiked to keep investors in sterling. It is not beyond the realms of
possibility that this could be the first serious difficulty to face a
new government after elections in 2010.