While many people have made a fortune out of property in the UK over the past few years, some have lost a packet – even as prices continued to rise. These are the so-called ‘Sell-to-Rent’ brigade, who attempt to time the peaks and troughs of the house price cycle by selling their home at the top and then buying after the presumed house price crash.

With prices finally wobbling and the credit crunch making terrible headlines every day, now looks a great time to sell-to-rent. Flog your home for £350,000 and you might be able to buy it back in five years for £250,000!

Happy times? Perhaps, but remember:

• 2005 looked a good time, too (prices dipped slightly when interest rates began to rise)
• 2003 also looked a promising time to sell (the onset of the second Gulf War led to a plunging stock market and global gloom)
• 2001 saw the earliest sell-to-renters make themselves known (this was around the time that London property first passed through its long-term price-to-earnings average, which has historically been a good barometer as to the future direction of house prices. It’s proven very unreliable in this era of low interest rates)

Now London property blog The Rat and Mouse notes that the sell-to-renters are back, going on to warn that:

Few financial decisions are as risky, or real-world calculations as tricky… taking in the cost of storage, rents (which can go up and down), the costs of selling and buying, the value of time, inconvenience and risk, all multiplied by however long it might take for prices to start to drop and then assuming it’s possible to buy in just before everybody else does. The chances of getting all this right are low.

Too right. I’ve not sold-to-rent, but I hold my hands up as a would-be first-time buyer who has sat out the property market for several years now, most recently believing that property prices are unjustifiable if you compare mortgage costs with rent.

It’s been a costly error. You gamble with the Great British love of property at your peril.

Catching up with some of my favourite financial blogs (no, Monevator.com is not an island!), I’ve noticed a sour note on many of the personal finance blogs that follow the net worth of the author (e.g. My 1st Million at 33 and Accumulating Money).

Let me say firstly that I really admire these writers for putting their cojones on the line so publicly. My concerns certainly shouldn’t be construed as a criticism of their efforts.

However, there’s a reason why I don’t track my personal net worth on Monevator.com, and it’s being demonstrated by the depressed tone that many personal finance blogs are taking right now.

The trouble with tracking your net worth

When things are going well, as they have for the past few years, blogs tracking personal net worth seem heroic. Booming stock markets and rising property prices see an ambitious target drawing nearer month by month. £500,000 no longer seems a distant dream, and even £1million looks feasible.

However when markets or property prices fall, the goal suddenly falls back too. All things worth achieving suffer setbacks, but there’s a crucial problem when your goal is a net worth figure:

• You cannot control the price the market puts on your stocks or your home

This is crucial. The writers of these blogs are doing just what they did last month or last year – saving hard, earning well, and giving us a ringside seat – but suddenly the results don’t look so good.

My advice: focus on goals and targets you can control

Goals are crucial, but they have to be attainable for you to keep working towards them. Attainable means controllable. Have a target of a million in the back of your mind if you want (I do ocassionally add up the value of all my investments), but in the meantime focus on stuff that you can achieve.

Good controllable goals might include:

• Saving 15% of your salary
• Reducing your monthly shopping bill by 20%
• Doubling your income over the next five years

These are all financial goals you have some ability to control on a month to month basis. The price of groceries may rise or fall, or you may find it hard to squeeze your boss for a raise, but they’re nothing compared to the uncontrollable fluctuations of stock markets.

Good longer-term targets might be:

• Focus on achieving a monthly income figure from your investments. (I recently wrote on how replacing your salary with investment income was a perfect long-term goal). Income from blue chip shares is much steadier than the same share’s capital value
• Focus on maxing out your tax-saving investment plans each year. (For instance, in the UK anyone with sufficient earnings should be focusing on using their £7,000 ISA limit every year.)

Create your own targets that suit your own position in life, but concentrate on things you can do, not things that will be done to you. The benefits are that you focus on what’s doable now, not on how generous the stock market may be feeling from month to month.

Ironically, now is a much better time to buy shares for income than a year ago. Anyone wanting to retire early should be pretty happy they can get 10%-25% more dividend income from leading shares than at the peak of summer 2007. In the long-term, markets (shares and property) will always bounce back, and this bear market will be seen as a great buying opportunity rather than a time for hand-ringing.

Thanks to the recent stock market volatility, investors are increasingly turning to gold, which is traditionally a safe haven in troubled times. This article introduces Bullion Vault, a company that enables you to buy and securely store small amounts of the highest-grade gold, which the company claims offers unique advantages for small investors buying gold.

Why are investors buying gold?

Sales of gold via exchange traded instruments have soared recently, with funds that invest in gold mining shares such as Merrill Lynch’s Gold and General Investment Trust have produced returns of around 500% over the past five years.

In 1999 gold was trading at around $275 per ounce, which was when Gordon Brown, the UK’s then Chancellor of the Exchequer, decided to sell half the nation’s store, further depressing the price. Gold has since rallied very strongly. Having broken through the $900 per ounce mark in the past few months, it’s threatening to sail through $1,000 an ounce in 2008. (Thanks a bunch, Gordon!)

Fans of gold (so-called ‘gold bugs’) make the following case for investing in the yellow metal:

• As a real asset, gold is a hedge against inflation.
• Demand for physical gold is increasing, with new money from India and China said to be particularly keen on gold. (Indian farmers traditionally buy gold jewelry as a store of value.)
• Production difficulties are constraining supply. Power supply problems in South Africa are the current bugbear, but exhausted mines, political instability and environmental concerns perennially hamper production.
• Most gold in the world has probably already been mined.
• Even though gold has increased nearly four-fold in dollar terms since its lows in 1999, the previous high reached in 1980 would be around $2,000 today, adjusting for inflation.
• China and certain other central banks are now increasing their gold reserves.
• In a world of ‘paper’ or ‘fiat’ currencies, gold is the ultimate wealth preservation tool. The US can print all the paper money it wants, but it can’t conjure up gold.

There are also convincing arguments against gold

[click to continue...]

After five months of tough talk, roundabout action and general chicken-sans-headery, the Government has ‘decided’ to nationalise Northern Rock. (Yes, in the same way that I ‘decided’ to start losing my hair).

The authorities responsible for dealing with the Northern Rock’s collapse have been making poor precedent-setting decisions since day one of this pantomime. None are so significant as nationalisation, however.

As Robert Peston says on his BBC blog, nationalisation is supposed to be the preserve of the doomed industrial dinosaur industries of yesteryear, not our go-go financial services. It’d be scarcely more shocking if Wall Street’s bankers stopped illicitly smoking Cuban cigars and started getting behind Fidel Castro’s ideas on redistribution. Harry Enfield’s Loadsamoney of the 1980s is morphing into 2008’s Tonnesadebt before our very eyes.

Unsettling consequences for UK tax-payers of Northern Rock’s nationalisation:

• We’ve each got between £2,000 and £3,500* of exposure to Northern Rock’s mortgage book (depending on who you believe and how the final count is tallied)
• We’ve also got about £100 billion in assets (the same loans will keep churning out cash, provided mortgages don’t default)
• We’ve thus now all got a vested interest in the housing market not collapsing

Yes, even bears on UK housing like myself have now become mortgage lenders at the peak of the UK’s biggest ever housing bubble. Some days you wish you hadn’t gotten out of bed.

[click to continue...]

The actor from Lock, Stock (and Press Gang, for a certain generation) has given The Telegraph a cautionary tale on the reckless spending and debt-mania that saw him go bankrupt at 31:

[click to continue...]

Most of us get into investing because we want freedom, whether from office bores, traffic jams or the drudgery of a mortgage. We want to be free from having to work for a living.

Why then are most money-motivated books called things like The Millionaire Next Door or Secrets of the Millionaire Mind? A million isn’t what it used to be, but it’s still more than most of us need for financial freedom.

What we’re really looking for is a replacement for our salary. The number on your pay check is the number you need to beat to retire early. If your monthly wage turned up in your bank account no matter what you did, wouldn’t you feel pretty financially free? You could quit work the next day if you wanted, although there’s no reason to take to the golf course – you could get a fun job, work for charity, or do all sorts of other exciting things instead.

Why you should consider targeting income instead of capital

[click to continue...]

New government statistics reveal home ownership in the UK is the lowest it’s been for a decade. In London there are an incredible 110,000 fewer home owners than in 2001 (not that surprising if you’ve seen London prices recently). Blame buy-to-let.

J.D. over on Get Rich Slowly has eliminated his debts and is ready to tackle his mortgage. He reckons you too can pay off your mortgage in half the time. I’m not sure that the technique he suggests works with UK banks, however.

I wrote recently about how you can improve your diversification with Exchange Traded Funds tracking government and corporate bonds.For some investors, further tweaks to their asset allocation can come courtesy of the new generation of Exchange Traded Commodities, which enable you to follow everything from the price of iron to the rising (or falling) price of a basket of agricultural goods.

My usual disclaimer about your own investments applies here as elsewhere. Arguably, you need to do even more research before you track commodities, as they’re a much more esoteric investment than a FTSE 100 tracker, say.

Why would you want exposure to commodities?

Commodities are an asset class that rise and fall over time, and are subject to bull and bear markets. In this, they’re not dissimilar to other assets – but they’re not closely correlated either. The price of, say, corn isn’t particularly related to the performance of the stock market, for example.

By buying commodities you can therefore diversify your portfolio over the long-term so it’s less dependent on the returns from shares. You might also hope to trade commodities, if you think you can buy when they’re priced low and sell when they’re high. (Far easier said then done, and plenty of boys in braces will hire you if you manage it regularly).

Commodities also offer a hedge against inflation. If the price of everything is going up, it usually starts or ends with commodities rising in value, too. Therefore, devoting a portion of your funds to commodities can help offset inflation-risk.

If the stock market doesn’t affect the price of a commodity, what does?

Lots of things. [click to continue...]