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.
One 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
In my last article, I promised a more detailed comment on the Budget changes to the tax treatment of pensions, but it seems that these changes are not yet ‘cast in stone’. There have been some alterations since the Budget, as I last wrote, and we may not have seen the end of these. Briefly, the changes only affect those earning in excess of £150,000 and are applicable until 5th April 2011 when further restrictions on pension contribution tax relief will be put in place. If you are fortunate enough to be in this position, then the important parts are: all regular contributions (monthly or quarterly) in existence before the 6th of April 2009 will continue to receive full tax relief, as will those pension investors that have made irregular contributions – who will benefit from full tax relief on the lesser of the average of three years ‘infrequent’ contributions or £30,000. The changes do not apply to those members of occupational ‘defined benefit’ (final salary) pension schemes, only ‘money purchase’ arrangements. Confused? You should see the unabridged version! It is not inconceivable that there may be other alterations to pension tax relief – which still remains a valuable benefit for many – so watch this space.
The Whistler 