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Money Matters

Risk & Reward

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David Foot writes exclusively for The Whistler

By the time you read this, the dust will have settled on the subject of the General Election, and we should have some idea of the financial plans of whatever Government we have to endure. Irrespective of the outcome, we will probably end up paying for the profligacy of the last few years. In the week of my writing this article, we have seen the televised debate, between the party leaders, on the economy, and the announcement of hugely increased profits from Lloyds TSB. I must say that I was most surprised that no mention has been made of the potential profits from the Banks in which we are all now stakeholders. These Banks should be paying for their own ‘bail-outs’, not the great British public. The Government (rightly, I believe) stepped in to avoid the potential cataclysmic meltdown of the financial system, and took the risks. The rewards should return to the Exchequer, and benefit us all.

This brings me to the subject of ‘risk and reward’. Broadly, the main risks are those of inflation and market risk. There is also the possibility of criminal risk negligence, fraud and theft, but these are, thankfully, somewhat remote. Inflation has not been as much of a problem in the last decade or so, as it was for much of the previous twenty or more years, and despite there not being too much concern amongst economists and fund managers, inflation has risen a little, and currently poses somewhat of a risk to your capital ‘enjoying’ the current short-term interest rates. There has long been a ‘Holy Grail’ of beating inflation in order to actually increase capital, rather than having its spending power eroded over the course of time. Those people who had savings in the seventies and saw the true value of their money decreasing by double-figure percentages each year, may still carry those unhappy memories with them!

The usual safe homes for capital tend to be high street ‘cash type’ accounts, and National Savings, with the latter offering regular issues of inflation-linked saving certificates, that will guarantee the return of capital, plus an amount equivalent to inflation over the term of the certificate. The only real risk of such products is the potential failure of the Government to repay your capital. This risk was always considered to be practically non-existent, although the recent worries about the Greek economy and the down-rating of its credit have caused some eyes to turn upon the UK, and although the risk of non-payment is still very small indeed, this risk is perceived to be higher than it has been in the past. With all the major political parties stating their intention to keep the UK in a low-inflation environment, it would seem that it should not be too significant a risk over the next few years, although circumstances may take the matter out of the hands of whatever government we have.

As this brings me conveniently round to where I started, I’ll wind up here, and look at the subject of market risk in the next issue. The summer is a-coming, see you then.

Money Matters

So Long Sheila

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David Foot writes about Sheila Schaffer, whose death marked a sad end to 2009…

Sheila Schaffer
Sheila Schaffer
When I first moved to Brighton, more than 10 years ago, I knew practically no-one and, with a new baby, did not get to see many of my clients. In my business, potential customers usually need to have a connection of some sort, either with their advisor, or the business that he or she represents: preferably regular, face-to-face contact. As a complete stranger, whose firm was based some 70 miles away, nobody had heard of me, or was likely to!

I sat on the sofa one Monday, with a small snuffly baby, and a copy of The Whistler on my lap. “Contributors wanted” it said. I got in touch there and then. To my slight surprise the charming editors said, in answer to my suggestion, that they would very much like to have a personal finance column, of some fashion. I set right to it, and wrote an article on ethical and environmental investments, my “pet” subject, which was duly printed. I was rather proud.

Forgive me, for rambling on, off-subject as it were, but I am getting to the nub of the matter. Some days later, I received a telephone call from a lady who had been waiting for a meeting in Community Base in Queens Road, and read The Whistler that was on a coffee table. “Are you the ethical investment fellow?” she asked. I said that, indeed I was. “Then we need to talk!”, and so we did, at some length. The lady’s name was Sheila Schaffer, a former Mayor of Brighton, political activist, pensioner’s rights campaigner, and one of the finest people I have ever had the pleasure to meet. She was my first client in Brighton, and became a good friend. It was with great sadness, that early in January, I heard of her death at the age of 82. She wanted to be sure that her investments were not in companies that were damaging people and the planet; she wanted her money to be used in ways that would help and not hurt, and, if possible, do something to improve the quality of life and of the environment. Human and animal rights were both of great importance to her, and she hated the thought of supporting companies that rode roughshod over either. She was none too keen on finding that some of her existing funds contained investments in tobacco companies, and even less keen on the arms manufacturers! The last time I saw her though, she positively glowed at my suggestion that she might consider including an element of forestry as an investment, one that was literally growing, and cleaning the air whilst doing so. Alas, before we arranged that, she was gone.

Sheila wanted me to go through all her “matters financial” and give an ethical “spring clean” to everything, to “cut out all the rot”, her words, not mine. I realise that not everyone is as single-minded as she was, but I think that there is room for us all to consider the impact that our money is having on others, on the environment in which we live, and maybe most importantly, on the world in which our children, and their children will live. Little by little, we might change things. She would have liked that. Rest in peace, Sheila, and may your God bless you.

David Foot

Money Matters

Money-Making, Money-Saving

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Financial PlanterNow that the New Year is upon us, and the excesses of the festive season are fading into memories, it is a good time to make some financial plans for the next 12 months (or so). In this first article of 2010, I thought it might be a good idea to give a few financial tips, to improve your personal wealth to some degree. It is worth my saying, from the outset, that I think this year will again be a difficult one for many, but some money making and saving ideas should be of use to most of us.

Firstly, don’t let financial institutions get away with anything: they make quite enough money as it is. If you carry a balance on your credit card(s), try looking at switching to a card that has a 0% interest period for as long as possible. Pay as much as you can afford off the account each month, as outside interest-free periods, it is an expensive way to borrow. Review your account at the end of the incentive period. If you pay off your balance every month, you might consider taking one of the ‘cash-back’ cards that pay you back a percentage of everything you spend, each month.

Saving money for the future is an eminently sensible thing to do, but for anyone who has any form of borrowing (certainly any borrowing at an interest rate of, say, 4% or more) the objective should be to repay as much as possible. It is almost inconceivable that there are people stashing away money, on which they are earning 1% to 2% a year, yet paying anything from 15% to 30% on credit or store card balances, yet thousands are! Whilst maintaining minimum payments where applicable, pay as much as you can off the debt with the highest interest rate, until it is cleared, then move on to the next.

Check the cost of your utilities, if you can, with a cost comparison website. If you have a mobile phone, internet access or home telephone, check with your provider at the end of each contract period, to see if you are on the best tariff. If you wish, consider switching providers to get a better deal. If you have a bank account for which you pay a monthly fee, check what ‘extras’ you get for your fee. Then make sure you do not duplicate any of these benefits. (I recently found that I had been paying for both mobile phone, and travel insurance, when both were covered as part of my current account package!).

I am generally a fan of regularly checking the cost of insurance, but it is fair to say that having a good ‘track record’ with an insurer can prove very useful, in the event of a claim. The cheapest is not always the best. The value is what is important. On the subject of insurance, it is a good time to check the cost of your life cover. It is cheaper than it has been for a quarter of a century, yet on average, insurers pay out some 50% more in claims, than they collect in premiums: surely a sign that such premiums will be reviewed, given these difficult times, and an increase could be on the cards. I have reviewed several cases of late, and reduced clients’ costs by a reasonable margin. If you have family or business commitments to protect, and have no cover, then now is a good time to buy.

As regards medium to long-term saving, I am reasonably positive about 2010, but would still advocate spreading investments by way of monthly saving schemes, if you have concerns about the markets.

I wish you all a happy, healthy and financially fitter New Year!

David Foot

Money Matters

Crash, Bang, Whoosh!

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As I sit down to write this article, it is the evening of 5th November, and beyond the window, all manner of crashes, flashes and bangs fill the air. Some investments seem to have been a bit like that in the last six months or so. Some meteoric rises that look like they will never end, some flashes of brilliance that have been sinking, ever so slowly, and, a little longer ago, Lehman Brothers, who just went bang! I am minded of my youth, and the likes of ‘Jumping Jacks’ which would jump erratically, this way and that, with no-one knowing which way they would go next.

I think markets may be in a ‘Jumping Jack’ phase at the moment! Then, there was the ‘Catherine Wheel’ that needed to be nailed to a tree or fence or something nice and woody: pinned too hard, and it would spin slowly, or not at all; too loosely and it would whoosh around at a frantic pace then fly off at a tangent and die. When the economic nail is just right in the world tree, then markets spin along – in their cycles – just as we like them. The current ‘loose nail’ of low interest rates was supposed to help things get spinning, and did at first, but it seems like the gunpowder is a bit damp now, and after an early surge, things haven’t really started firing up again. Some time next year, things may start to burn, then possibly overheat again, and the Government of the day may start to nail the economy a little more tightly, by raising interest rates. We shall see.

Fireworks theme over, time to focus on what has done well, and might do well in the future. Now that there has been a rally in many traditional asset classes, many people are looking for the potential opportunities going forward. Something that fits into both the excellent past performer, and the possible star of the future, is gold. The price of gold has increased by something of the order of 50% in the last year, and one of my favourite funds is up by 85% over that period. Many may say that it is therefore time to sell, but I have seen comments in the last week, suggesting that the gold price could increase by another 50% in the next 12 months! If stock markets fall, then gold has been a traditional place of safety. If world economies take off, then the demand for gold – for industrial uses or for jewellery – could take off too, fuelling price rises. In that case, so too would the demand for commodities, which could continue the bull run in their prices, that started just under a year ago.

Investing in timberOne last favourite of mine, which ticks the ‘alternative asset’ box, and also that of an ethical and environmental investment, is forestry. There has been a reasonably steady demand for timber, and, depending on the end use, returns have generally been between 5% and 8%. There are several funds that enable investors with average means to get some exposure to this asset class, thereby spreading their investment risk, and purchasing assets that are growing in a literal sense.

Finally, some folk extol the virtues of fine wine, as an investment. But in the light of the forthcoming festive season, I can think of a better use. Until next year, cheers, and have a happy and peaceful time.

David Foot

Money Matters

Economic Weather Set Fair?

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UmbrellasWell, here we are, Whistler time again, and it seems that the summer has eluded us! The evenings are starting to draw in, and there is a slight chill in the night air. Yet, the trees are heavy with the fruits of autumn. Yes, there is something of the Equinox about the financial markets at the moment. Equal measure of good and bad news, those foretelling a long, cold, winter; those revelling in the joys of picking the fruit to pop in the brandy, and looking forward to Christmas!

Little by little though, economic indicators continue to improve. Despite the dark spectre of unemployment, still we have seen increased mortgage lending, and yet more (if small) increases in the major house price indices. The Bank of England Base Rate has consistently been held at 0.5%, though on the negative side, there has been another rise in the number of house repossessions (albeit smaller than predicted by many). The rally in the UK stock market, to which I referred in my last article, still has prices on a rocky sort of plateau; a situation that I still feel may well be the case for the remainder of the year, and probably the first quarter of the next. Volatility (within a certain range) has been very much a feature of world markets recently, and there will be opportunities for profits to be made, but probably not to any great degree for the smaller, long-term investors – we will probably have to wait for a while to reap our rewards. Markets are still at a reasonable level, on a long-term scale, and still worth dripping money into, but the fire sale valuations that we saw in the early part of the year, that provided us with such bargains, are gone until the next crisis scenario arrives.

Just time for an update on the mortgage market: there is still a weekly increase in the number of schemes that are available and in the percentage (slightly) of the purchase price that they will lend. Rates of interest are gradually getting less, but the profit margins made by the lenders remain high. (It seems that, in their business anyway, “the customer is not the King”). The Treasury has thrown billions at the UK’s financial institutions, but it seems to have been spent, predominantly, on bolstering up their own balance sheets, and ensuring that their executives maintain a healthy bonus.

Stop press! As I put the finishing touches to this piece, I am thinking back on a meeting that I had today with a Director of one of the country’s leading fund management companies who commented that “it feels like a Bull market again”, the Footsie 100 index is up over 40% from its recent low – to over 5000, talk of bids and mergers abound and, to cap it all, we are just starting to enjoy the first days of an Indian summer. It is easy to get lulled into a false sense of security at times like these. I, for one am packing an umbrella, just in case!

David Foot