Some good reads from around the Web.
One thing that has put me off investing in gold over the years is people who invest in gold.
At the height of the property boom, smug landlords who’d come to own 5-10 properties and told you that house prices never went down – ignoring any evidence presented that they did – were infuriating.
But they had the good grace not to bring global conspiracies, canned foods and shotguns, or the Mayans and Egyptians into the conversation. They also rarely told you that you were an idiot, or that you were being paid to lie.
At their worst, ‘gold bugs’ do that and more. The lunatic fringe of these investors recite a gabbled litany of sacred truths, acronyms and concatenations to rival a religious order. Non-believers are invariably stoned.
Take the article Cash out of gold and send kids to college by Peter Tasker in the FT this week1. Tasker points out the gold price has softened, despite European meltdown fears, low interest rates, and imminent monetary easing. He suggests that might be because after rising nearly seven-fold to its peak of $1,900 in just 10 years before falling to around $1,600, the current price might be high enough:
In inflation-adjusted terms, gold remains within spitting distance of the all-time high it reached in 1981. After that it embarked on a 20-year bear market, which delivered a loss of 80 per cent in real terms and a far greater opportunity cost as other financial assets soared in price.
Even now the total market value of all the gold in existence – which, remember, generates a return of precisely zero – exceeds the combined capitalisation of the German, Chinese and Japanese stock markets, with all the productive capacity they represent.
I think those are pretty interesting statistics, at least worthy of consideration.
Here are some quotes from the comments this article received:
- “Wow! This guy has got to be a paid writer for the international banking cartel. What he is spewing out is exactly why they’ve been forcing the price of gold into line with risk assets like stocks. They want people to think this BS. The lack of insight is amazing”
- “This author, Peter Tasker, is 5 cans short of a six-pack when it comes to understanding the Gold market. I would advise the editor of FT that you are known by the company you keep. And if you allow ignorance and incompetence to be passed along for knowledge, you’ll make FT synonymous with stupidity.”
- “This argument is quite silly and does not understand the nature of gold.”
- “Since when has the ‘quoted price’ been a good indicator for anything? Not since Liborgate anyways…”
- “The Dep Premier of China is on record as ‘we are at war with the USD and our weapon of choice is gold’ China is winning this war – with a lot of help from the misguided and uninformed West.”
And so on. A few sensible voices make some good points in favour of gold, but they are drowned out by the noise. It is always thus when anyone questions the cult.
It’s very hard to imagine this kind of hysteria greeting anyone who said that shares were too expensive, that bonds were over-priced, that property had further to fall, or that cash was a poor store of wealth. Gold bugs see themselves as hardened contrarians – odd given so many sing from a facsimiled hymn sheet.
Some of the charges are ridiculous, such as the FT being on a quest to lower the gold price, or hellbent on publishing anti-gold propaganda. The FT has of course run plenty of articles over the years highlighting the case for gold – just this morning it recaps both sides of the argument, including what it terms “strong arguments in favour of holding the precious metal”.
I’ve come to believe that there is a case for an allocation for gold, and I’d like to add to my very small horde stored at Bullion Vault. Every time the price approaches $1,500, I consider buying some more. If I do so, I hope to discover that subscribing to conspiracy websites and inquiring about a Panamanian passport are purely optional.
Hopefully the fact I own a tiny amount of gold – and that Monevator is too titchy to be worth bullying – will keep the more rabid gold supporters from commenting on this article, but anyway if you feel the need, please be warned I’ll delete anything I judge to be either rude or extremist.
Sorry, I mean I’ll be “censoring” it.
From the investing and money blogs
- Index funds win again – Rick Ferri
- What target-date funds can’t do – Vanguard blog
- Unrealistic optimism and the impoverished investor – The Psy-Fi blog
- Vanguard index fund lost $25 million on Facebook – The Finance Buff
- The cheapest low-cost SIPP – Retirement Investing Today
- Is there a bubble in dividend growth shares? – UK Value Investor
- Practical home-buying advice for beginners – Totally Money
- Rise of the trading robots [animation] – Nanex & Fool [related: Psy-Fi blog)
- Trade-offs between inequality, productivity, and employment – Interfluidity
Book of the week: Strangely enough, while we all expect websites like Monevator to be free (much to the disappointment of my accountant) we’re happy enough to spend money on ebooks. In fact, explains Kate Harper in How to Publish and Sell Your Article on the Kindle, there’s even a growing market for short articles on the device. If you’ve got wisdom to share but it won’t stretch to a book – or a blog – then give it a go.
Mainstream media money
- Standard Chartered: My dollar, my rules – The Economist
- More evidence that the Earth really is hotting up – The Economist
- Obama presidency one of the best for stocks since WW2 – Yahoo
- Buy and hold is alive and well – Motley Fool US
- A silly economist thinks overpopulation is the answer – Business Insider
- Swedroe: Bill Gross isn’t entirely wrong about stocks – MoneyWatch
- No plans to reissue NS&I index-linked certs [week old] – ThisIsMoney
- US drought threatens food price surge – FT
- Kriss Akabusi: My first million – FT
- Man successfully deposits $95,000 junk mail cheque – FT
- Are absolute funds an absolute waste of time? – Telegraph
- Many investors abandon their ‘baffling’ SIPPs – Telegraph
- First time buyers shut out from best mortgage deals – Telegraph
- How I cut my grocery bill by avoiding supermarkets – Guardian
Product of the week: Engensa is offering cheapish loans to install a solar panel system, which it claims can return you 10% in terms of savings over the years. The Guardian has a summary. I like the idea but I’ve no idea if it’s cost-effective (and I’m no financial adviser) so please do your sums carefully.
Like these links? Get them emailed to you every weekend.
- Google the title if the article is restricted to you [↩]
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Hi TI
I hope I’m not one of the “more rabid gold supporters” by replying to this one. I personally hold 5% of my net worth in the yellow stuff. In my case though it’s not because I fear Mad Max or need a tin foil hat. For me it’s simply another diversifier (it’s my commodities allocation and it doesn’t suffer from contango or backwardation when bought in physical form rather than futures form) that behaves differently than my other assets. The theory then is that when one asset is zigging, the other is zagging. I’ll then be selling the zig and buying the zag.
Cheers
RIT
@RIT — Absolutely not nuts. 🙂 Thanks for explaining.
Normal commodities are priced by supply and demand, where demand means “needed for use”. Copper, wheat, oil, tin etc are used by the final buyer providing the demand. Gold, like jewellery grade diamonds and Damien Hirst pickled sharks, is not used (excluding minor uses). It is the just a bigger fool investment. It is only worth what someone is willing to pay based on what they think (hope) someone else will be willing to pay in the future. Gold as an investment is a bit like popping in to your local casino once a month and putting x% of your wealth on black.
Splendid article.
No way would I question someone holding 5%, 10% or even 25% of their wealth as gold, but the gold bugs suggest that nothing less than 99% in gold and the rest in bullets and MREs makes any sense.
There is a lot of cross-over between the gold bugs and the perma-bears who’ve been forecasting the “death of equities” for decades.
I have no time for them.
The Interfluidity piece about income inequality is absolutely chilling. As chilling as the Avoiding Supermarkets piece is inspiring. Check out part 1 and the comments to enjoy the beauty of knowledge pooling and the wisdom of the crowd: http://www.guardian.co.uk/money/blog/2012/may/21/giving-up-supermarket-shop
Good article on gold bugs driving others mad.
What really get on my nerves is the fact not the comments on the articles but on the forums itself such as MSE forum where there are always some posters that always advise to questions to put all on gold, regardless on what kind of risk the original poster wanted.
As to paraphrase some posts “Want an income? Put it on gold and sell part of it as it go up,” “Want to save? Put it on gold and the gain in value will be as such that saving accounts will never beat it” “How could it possibly fail!”
Gold is something I will not touch with a barge pole and will stay clear until end of time.
Cheers
Joe
Your interest in the yellow metal: have you been ‘inspired’ by a certain low-key event I understand is taking place in London?
Gold is not an investment. It is money. It has been money for 5000 years, during which time 100’s of fiat currencies have come and gone.
It is a good form of money because it is portable, divisible, fungible, durable and limited in quantity. The free market has selected it (and silver) to be money for these reasons and nothing else over most of human history. Fiat currency is all these things except for the last.
Gold has been superior to fiat currency as a store of value for 1000’s of years. This is especially the case in today’s Keynsian world of negative real interest rates and currency debasement. We are at the end of a 41 year Keynsian experiment of exclusive fiat currencies since the dollar went off the gold standard in 1971.
The natural history of money is for gold to be money. Then for gold to be kept in a vault and “IOU gold” to be money. Then for the “IOU gold”s to be disconnected from real gold. Then for these pieces of paper to be devalued until they assume their intrinsic value (0). Then for people to cry off fiat currency and to go back to gold. Then for the cycle to repeat again.
As an example, the US dollar has lost 95% of it’s value over the last century. One 1913 dollar would be worth 5 cents today. A century ago, the dollar was on the gold standard. 1 dollar could be exchanged for 1/20th an ounce of gold, worth $80 today. Gold has not “risen in value” over that time. It is a dumb lump of inert shiny metal. This is a reflection of the depreciation of the dollar. Depreciation is what fiat currencies DO over time. The terminal depreciation is usually quite precipitous and entertaining, as people lose faith in pieces of paper with numbers written on them which can and are produced in unlimited quantities at little additional cost. Google “John Law”, “Zimbabwe”, Argentina, “Hungary”, “Weimar Germany” for illustrations.
Good luck outrunning inflation and preserving the purchasing power of the cash portion of your portfolio by sticking it in a cash ISA in “safe havens” such as Natwest and Santander. Good luck to you if you believe the official Government figures for inflation. Have you been shopping recently?
Gold is not an investment. I simply prefer gold to cash. 5000 years of history says it is a better store of value than paper fiat currency. Show me compelling evidence to the contrary, and I’m more than happy to change my mind.
“Gold is money and nothing else” (JP Morgan).
I charge you with simply listing a rhetorical question. By definition you are looking for 5000 years of history behind the alternative before you’ll admit it as evidence, so your assertion is untestable in a human lifetime.
And good luck to you, though I observe that the economy has done a damn sight better under your loathed fiat currency in the last 40 years than it did before, in terms of improvements in human lifespan, standard of living, decent heating, water, communications, indeed nearly any measure of standard of living I can think of.
Ermine,
Precisely. Hence the irresistible lure of fiat currency. It always creates a temporary boom in prosperity with the creation of easy credit and easy money, followed later by the inevitable debt/currency collapse. Check out the Yuan Dynasty in 11th century China and John Law’s French assignats.
Fiat money is brilliant for governments, as otherwise unfundable wars, political promises and social programs can be paid for by means of the printing press (for awhile). It is also great for the banksters, as they get the first bite of the cherry wrt the newly created currency before inflation hits. Gold cares not for such wants and needs and is less forgiving. It forces governments, countries and individuals to live within their means.
The median lifespan of a fiat currency is 27 years. We have done extremely well to keep the Ponzi scheme going the for 41 years. It’s been so long since gold was money that most people find the concept alien. They trust pieces of paper that have been and will be printed by the trillion to a shiny yellow metal that has survived 100’s of such experiments in the course of human history.
The Keynsian model of perpetually borrowing prosperity from the future hoping that economic growth outruns the debt is coming to a screeching halt in Europe. The UK is currently deficit spending at a rate of £5000/sec ( the Americans at $42,000/s). It won’t be long before reality bites in the UK, Japan and the US.
Meanwhile, most Western sheeple have been so indoctrinated in the value of paper over real assets that they are fleeing to the “safe haven” of sovereign debt issued by fiscally incontinent bankrupt Western governments paying subinflationary interest rates. Governments which are printing the currencies in which the bonds are denominated by the trillion. Meanwhile the Chinese are busy dumping their fiat in acquiring real assets (they imported more gold via Hong Kong in the last month than the UK has in total).
Gold and silver won’t assume their true value until the biggest financial bubble in human history ( the sovereign bond bubble) goes pop. We live in historic times.
Once the word “sheeple” appears you know you have moved out of the real world into fantasyland. Lets keep this website where is was, firmly in the world of sound investing.
I’ve always thought William Bernstein’s take on the long-term performance of gold as an asset class was about as deep as you need to get as an investor: http://www.efficientfrontier.com/ef/adhoc/gold.htm: it can form a useful part of a balanced portfolio if bought at the right time.
As for gold bugs, well, you’re simply feeding the backfire effect 🙂
Personally I prefer inflation linked government bonds to gold
A true gold bug will argue that inflation statistics will be manipulated by a government
If you live in Argentina that might be a valid reason, but western governments problem is mainly competence not probity
To put it in context, the UK inflation linked bonds market (not sure about US TIPS) didn’t exist until 1981…
@Paul — Uncanny, isn’t it?
John’s first comment went up as an articulate outline of the more extreme end of the case for gold. Ermine challenges it and suddenly we’re into Sheeple etc.
I do see their point to a limited extent, even if I don’t agree with it — and if you don’t believe the money system is sound then it’s hard not to sound like an extremist.
Also, people like me call them ‘gold bugs’ (someone else is always the gold bug to a gold bug) and then people compare buying gold to going to the casino; while I fully get the point (no reference point to value, no income, etc etc) I do think that’s provocative. Plenty of great investors have at some point held gold.
But then the ‘Sheeple’ arrive…
Anyway that side of the pro gold case has been made now, and I remain poised over the delete button.
Apologies for the sheeple comment. Just feel that either I’ve gone mad or
the world has when mainstream thinking dictates that government debt paying negative real interest rates is seen as a safe haven and a sound investment in the midst of rampant money printing and a sovereign debt crisis.
With regard to government manipulation of inflation figures, which is absolutely fundamental to assessing the real return on your investments,see the links below
http://www.saveoursavers.co.uk/author/jason-riddle/how-to-have-your-inflationary-cake-and-eat-it/
http://www.youtube.com/watch?v=7YrMqp7R5yQ&feature=youtube_gdata_player
I sold out of my gold etf when it became clear that it was ceasing to provide any protection against inflation, the euro debt crisis or shares tanking. A mix of index-linked gilts and cash (earning 4% interest tax free) have proven better safe havens.
Of course a true gold bug would never have held an ETF in the first place, even if backed by physical gold in a vault in London or Switzerland. Its all a scam you see, paper gold.
I would still like to build up a secret stash of 1oz Britannia coins, but I think that is as much for my “inner Gollum” to have and to hold rather than wondering if the loonies are correct.
@John Law
… with Ermine, I don’t care for the employment of rhetoric as a substitute for argument, and anytime the phrase ‘fiat money’ comes up that’s exactly what’s going on. Gold is just a less-than-averagely-useful metal, and the attribution of value to it is just as ‘fiat’ as the attribution of value to bits of paper with pound or dollar signs on.
@Semi
Don’t think your hoard of gold coins will do you any good if the worst comes to pass
http://en.wikipedia.org/wiki/Executive_Order_6102
🙂
Thank you for the healthy debate. In a way, I’m rehearsing the arguments for buying precious metals to a skeptical conventional audience to see if there’s any flaw in my thinking or logic, and to see if any sound contrary arguments are forthcoming. I’m not a 100% certain about the premises myself, and appreciate the feedback from a community of experienced investors.
Personally feel that it is a very emotive topic on both sides, as accepting that the real returns on conventional investments such as cash, stocks, bonds and real estate might have been negative over the last 12 years, and that we might be due for a painful correction in all these areas due to fundamental problems with our monetary (fiat vs hard money) and economic (Austrian vs Keynsian economics) systems and living beyond our means for decades takes a lot of doing.
Agree with SemiPassive that gold has been moving in concert with stocks in response to bad economic news (down) and threatened QE (up). The safe haven at the moment seems to be German, Swiss, UK and US sovereign bonds. I do think that gold won’t start behaving like a safe haven until the trouble moves to the core countries and these bubbles inevitably burst. Gold itself might go into a mania (as evidenced by historically high gold/median house price, gold/Dow, Gold/oil ratios). This, as well as positive real interest rates and gold for cash shops on the high street might signal the time to sell.
Also think that gold and silver will drop in value with the first major deflationary shock (the first bank failure and the first sovereign default), but will rise in price due to the inevitable response (bailouts funded by money printing and currency debasement).
My feeling is that remaining liquid in such an environment is the best strategy, and think that gold is more likely to preserve my purchasing power through the reset than cash savings. 3000 years of history is on my side, after all.
Should purchasing power be preserved, real income producing assets such as high dividend yield stocks and real estate will be available for pennies on the pound at the other end. Conrad Hilton bought his first hotel in the midst of the great Depression for 1* earnings.
Personally feel that the mainstream financial media is biased against gold. People with contrarian ideas are dismissed as conspiracy theorists and gold bugs, without rigorously examining the evidence for and against their beliefs. Ipersonally get most of tinfoil hat updates from http://www.zerohedge.com
Time will tell. In the meantime, healthy debate should be encourage without resorting to name calling (sheeple on my part, gold bug on yours).
My last contribution on this one……..I don’t have any good data on a 3000 year time frame but Jeremy Siegel gives data for gold, government bonds and equities from 1802-2006 which I have updated to the present. That is from the Napoleonic Wars and covers the Industrial Revolution, two World Wars, the Great Depression and the dot.com revolution so it is historical enough for me. In real terms $1 invested becomes:
Gold $2.75 (0.5%pa)
Equities (divs reinvested) $814,000 (6.7%pa)
I agree that government tend to underestimate the rates of inflation, particularly in recent years, but that would suppress both sets of figures equally probably pushing gold into negative territory.
Rather more combative than most threads on this blog but regardless far more polite than usual discussions on the topic of gold. And that I welcome!
I’m am always extremely sceptical about panaceas in any sphere of human activity. Therefore the notion of investing all of one’s free capital in gold is anathema to me. On the other hand, if anyone said “avoid gold under any circumstances”, I’d be equally sceptical!
So far as the 5000 year statistics are concerned, I have three observations:
a) How reliable are any statistics regarding the value of gold going back more than a few hundred years ?
b) Most of the last 5000 years were prior to the industrial revolution, a modern banking system, globalisation and the internet. So even if there were reliability statistics about the value of gold over the last 5000 years, I submit that their predictive power would be rather limited!
c) Even if there was a very long term trend in “real” gold prices, that would have little relevance so far as predicting the movement of gold prices over the short or medium term. Rather like looking at stock market trends. (Please note, I have no wish to enter an argument with technical analysts/chartists!)
Notwithstanding the very long term psychological appeal of gold, its medium term investment performance can be disturbing with falls lasting two or three decades. Most of us don’t have a sufficient time horizon.
It’s all very well to sit on your pile of gold and watch currency movements but the “gold is money” argument doesn’t help with real sources of value like labour and energy.
It seems to me it’s a bet, like any other investment, and it probably makes sense to have some, providing that it is acquired at the right price. Yes, the inflation threat of currencies is a big +ve for gold, but it has -ves, too. China may complete its programme of reserve building; Indian brides might turn to costume jewellery; political problems in mining areas might ease and encourage production to increase again.
John,
Have you tried to go buy groceries with your gold yet?
I am pretty sceptical about gold as an investment, but it seems to offer quite a few of the functions of money – a means of exchange, store of value and unit of account.
My problem with it is that it just stores its value. A Roman Aureus was equal to a soldiers monthly pay, it weighed 7.3g was equivalent to 24 carat(wikipedia) and gold is about £33/gram. This gives a value of £240. It is not a million miles away from what a soldier might earn today given 2000 years have passed. If you had to invest over 2000 years burying gold is no bad option!
But as investments go I reckon within my lifetime another Dark Ages or Barbarian invasion is unlikely. If you think is the case gold probably is a decent option, and why risk diversification? Just bury some gold.
It surprises me how cheap Ancient Roman jewelry is. You can pick up gold rings for around £1400, not that much more than modern jewelry.
Here is a 5min video on gold is a better store of value than paper money:
http://www.youtube.com/watch?v=ja0EeLCraXI
I don’t think anyone questions whether gold is a better *long term* store of value than paper money.
However, gold bugs go further and insist that it’s better than asset classes such as equities over the long term, which is demonstrably untrue.
Gadget Mind,
I agree. Gold cannot be compared to equities, as it is not an income producing asset.
It is however a direct competitor to cash in the bank, and government debt. In the current climate of ongoing currency debasement, negative real interest rates, it has been superior to the above for the last 12 years or so.
As an aside (with the benefit of hindsight of course), it has destroyed equities over the same time frame (“the lost decade” for equities vs 400% appreciation for gold). In my opinion, equities are due for a massive correction, as they currently bear no correlation to the ongoing worldwide recession and impending currency and sovereign debt crisis. In this situation, I feel it prudent to remain liquid such as to take advantage of undepriced income producing assets the other side of the reset.
The bear market in gold between 1980-2000 were characterised by high nominal and real interest rates. Historically, gold has done poorly under these circumstances, as there is a high carry cost. The moment interest rates were lowered following the tech bubble of 2000, gold started it’s current run.
The last bull market in precious metals in the late 1970’s was terminated by Fed Chairman Paul Volcker raising interest rates to 18%. Due to the overwhelming burden of sovereign debt, raising interest rates at the present time would case a fiscal catastrophe in Europe, the UK, the US and Japan. The Central banks are caught between a rock and a hard place.
One of the few ways of escaping the financial repression by which they are devaluing your savings is to convert cash into gold. The more they print, and the lower interest rates go, the higher gold will soar. Let them repress as much as they like.
Most investors would agree that cash forms an important part of a balanced portfolio. At the moment, gold comprises 1.5% of financial assets. It seems very few investors see it as better than government paper, despite the above. Therein lies an opportunity
The bulk of my cash is in NS&I Index Linked Certificates, which I regard as being safer than gold.
I also think that equities are due a correction, but not the in direction that you suggest. A lot of money is grubbing around on the sidelines looking for safety. Sadly, the more they buy into “risk free reward” the more they find reward free risk.
I’m also keeping a close eye on Personal Assets Trust. Once they start reducing their gold, we’ll know the gold party is well over.
http://www.independent.ie/business/stocks-markets/puzzled-investors-should-put-some-silver-wine-art-and-gold-into-their-swag-bag-3201609.html
GadgetMind,
Which inflation measure are your certificates linked to? When did you acquire them, when can you cash out, and what are the penalties for cashing out early?
Cheers,
John
NS&I certificates are linked to RPI with a bonus on top if held to maturity. I know there is some loss of linking/bonus if they are cashed early, but this cash represents our “three years of essential spending rainy day fund” so it is very unlikely they won’t be held to term.
Gold isn’t really suitable for such money as you’d hate to ever be a forced seller of something that can unperform cash for such long periods of time.
Our NS&I linkers will mature just before my planned retirement date, and at that time we can decide how to reallocate between equities, bonds, etc.
Are they linked to RPI 1:1? What is the bonus, and what is the term of the bond? When did NS&I last issue them?
Cheers,
John
They were last issued around August last year. Sensing it was the last chance for a while, we filled our boots with that issue with wife+self+kid each getting one and us also holding some in trust for each other to get around the £15k each restriction.
Over the five years, they pay RPI+0.5%. This is only RPI+0.25% in the first year, but more in later years to average out at RPI+0.5%.
This isn’t as good as the earlier issues (which we also hold a fair few of) but all the interest is tax free.
Note that cash isn’t a major asset class for us (8% currently) but it’s nice to have much of what we do hold both index linked and tax free.
Gadgetmind,
Sounds like a good deal. Will probably not see the like of it again. I know RPI is more generous and less manipulated than CPI.
Don’t know how representative UK RPI is of real world inflation, but extensive evidence that the current American CPI is heavily massaged downwards.
Easiest way to prove this is to calculate inflation as it used to be under the old American CPI system, which economist John Williams does at http://www. Shadowstats.com.
These are the accounting tricks used to manipulate CPI:
http://www.youtube.com/watch?v=7YrMqp7R5yQ&feature=youtube_gdata_player
Yes, NS&I linkers have always been a good deal, and we’ve made heavy use of them over the year. However, our stocks and shares ISAs have done even better, and this is despite the “lost decade”.
As for how representative RPI is, our personal inflation rate is lower as we own our house outright, so we can exclude housing costs. This means that RPI+0.5% is OK, but obviously can’t match the long-term real return of equities.
Hmmm, “over the years”.
@John — Please don’t post any more links to Youtube gold videos, that’s drifting into the fringes again here for Monevator. Much appreciated, and mainly enjoying the discussion here otherwise.
Gadgetmind,
How have you made positive real returns on equities over the last 12 years?
A quick look at the FTSE 100 since 1985 shows the nominal loss in value over the “lost decade” quite nicely, without even adjusting for inflation via RPI.
http://uk.finance.yahoo.com/echarts?s=%5EFTSE#symbol=^ftse;range=my;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;
Did you invest in funds, pick stocks yourself or invest in overseas markets?
1) The FTSE 100 is not the entire world of equities – far from it.
2) You need to always look at Total Return figures as dividends are an important part of equity investing.
3) I didn’t start investing in equities in 2012 – I opened my first PEP on pretty much the day that Lawson pushed them out of the hanger in 1986.
4) I’m continually adding new cash, which means that equity prices being low is a *very* good thing for me as I get more dividend income for less capital. You call it the “lost decade” and I call it “the sales”.
5) I have a multi-asset approach and rebalance regularly but not frequently. As equities drop, gilts rise and I load up on cheap equities using over-priced(?) gilts.
6) I now mainly use trackers, ITs, REITs and (for UK blue-chips) some direct equity holdings.
7) I buy when the lemmings are jumping off the cliffs. During August to October 2011, I moved a six figure sum from cash into equities and then slightly less again in early December ready for the Santa Rally.
8) I have substantial holdings in some tech company shares that have done *very* well (30x !) since the middle of the decade. This has driven funds into other pots but I don’t count it as part of my total return.
9) I even (gasp!) have some indirect gold holdings. mainly via an ever-increasing unwrapped holding in Personal Assets Trust.
Gadget Mind,
Am I right in thinking that the trackers do not pay dividends?
John
Trackers pay exactly the same dividends as the underlying assets that they hold. If you choose the accumulation units of the tracker, these dividends are used to buy more of the underlying assets, so you get the power of compounding. If you hold the income ones, you get to choose where to invest the dividend stream.
Where did you get the idea that trackers didn’t pay dividends and where did you think the dividends went if not to the investor?
BTW, there are also trackers (and ETFs) that are designed to track higher dividend equities to give an income/value play. I have held some of these for the last 8-10 months and they have performed very well.
BTW, here is why you can’t just look at capital values for income producing assets.
Dec20 1999, FTSE 100 = 6930, FTSE 100 TR = 3141
Jan30 2006, FTSE 100=5780, FTSE 100 TR=3141
Aug17 2012, FTSE 100=5852, FTSE 100 TR=4077
I chose Dec 1999 because the FTSE 100 was at an all time high. (It actually hit 6950 but I don’t have the TR data for that exact point.)
Despite the big drop in capital to early 2006, the TR index reclaimed its all time high. Since then, the capital value has been high, and it’s been low, but the TR has kept on marching upwards. Markets sideways yet total return up 30%, and paradoxically, the total return is higher than it would have been if the capital values hadn’t fallen!
No, the real return since the exact high point of the FTSE is not positive, but only a very unlucky investor would drop their entire wad into the market at the exact high.
Gadgetmind,
What is your current exposure to AAPL, FB and the financial sector?
Dunno why you ask, but I’m happy to answer.
I made a big punt on smart ‘phone exposed companies about a decade back and mainly went into AAPL, ARM and IMG. This worked well, but I have sold down all of them as and when CGT allowed. I’m still about 25% in this sector.
My FB exposure is only via trackers. Not my thing, never has been, never will be.
My financial exposure has ramped up over the last couple of years, mainly via subordinated debt (direct and via an OEIC), preference shares, etc. I also have exposure via SLXX and some LLOY I bought a few months back in the mid 20p range.