Every week I read a huge number of personal finance and investing articles. I thought you might enjoy a weekly shortcut to the best.
So the Bank of England has cut interest rates to 1%. While anyone relying on cash savings should already have diversified their income portfolio, it’s still a terrible message to bail out borrowers (even if for the greater good) and punish prudent savers. Even the building societies wanted rates to stay at 1.5%.
Time for another entry in my corporate bond series, which is taking rather longer than expected to finish. (We need to hurry along to see whether corporate bonds are worth an investment at depressed levels before they’re no longer depressed!)
Note that while I don’t claim to have the last word on shares either, I’ve spent much more of my time studying and investing in shares compared to bonds. As I’ve as I previously explained, I don’t think corporate bonds are attractive usually, so I’ve directed my efforts on shares.
But don’t click away just yet! The reality is most private investors shouldn’t even try to become expert on obscure corners of the bond universe.
I believe we should only be considering the simplest corporate bond investments:
Even these aren’t must-haves; generally I believe government bonds are a better investment for private investors than corporate bonds (but note that government bonds such as US treasuries and UK gilts were expensive last I looked).
In this post I’ll explain the most important types of corporate bonds for private investors. In the next part of the series we’ll look at convertible bonds, and then we’ll briefly cover some other kinds of bonds you might hear about, but that generally I wouldn’t invest in.
A month into 2009 and the bad news continues. Perhaps I’m becoming immune to the economic gloom or maybe it’s the first sign of spring, but I can’t help feeling we should look on the bright side.
Yes, the world economy is undergoing a severe contraction. Millions of people are losing their jobs, and investors have seen their long-term equity holdings halve or worse in value. Even countries such as Iceland are going bankrupt.
But you know what? It could be worse.
The universally pessimistic financial commentary might have been useful in 2007, when investors could try to do something about it. But with a few honorable exceptions, everyone expected those debt-fueled good times to last forever. Banks lent huge amounts against inflated property values on the grounds that prices wouldn’t ever fall, and politicians like the UK’s Gordon Brown ‘balanced’ their budgets by assuming they’d abolished the boom-and-bust economic cycle.
Busts in capitalist systems happen for a good reason. In the absence of (inefficient) central planning, we need the market to correct the imbalances that build up as people and institutions slowly distort the system.
Something had to be done to stop the poor allocation of capital, whether by ordinary people bidding up the prices of their homes or cynical bankers slicing off millions in bonuses for playing pass-the-parcel with toxic and highly-leveraged assets.
Clearing uncompetitive retailers out of the high street and forcing inefficient companies to shape up or ship out overseas will also be valuable in the long run.
None of this is to diminish the suffering if you’ve lost your job or your home. But from a global perspective, things could be far, far worse.
