Every week I read a large number of personal finance and investing articles. Here’s my latest weekly shortcut to the best.
I’m away suffering through a stag weekend today, so this selection of personal finance articles from the blogosphere doesn’t cover anything published after Thursday.
Eating breakfast this morning, I caught Hugh Hendry, the gloomy and currently outperforming UK fund manager, on CNBC.
Hendry’s main call, which he has been rewarded by repeating for months now, is to avoid equities.
Yes, the market has fallen, Hendry says, but that doesn’t mean it won’t keep falling. Look at the Great Crash of 1929, and all the down years that followed. Markets can keep dropping for years.
I like the twinkle in Hendry’s eye and his contrarian reflex, but regular readers will know I’m not convinced that he, me, or anyone else can really time stock market moves or spot bottoms over the short-term.
Horizontal diversification is when you hold different instances of the same asset class. In this form of portfolio diversification, you’re trying to reduce localised or industry sector specific risks.
A broad index-based ETF is a good example of horizontal diversification.
Today Lloyds Banking Group ceded control to the UK government in return for UK taxpayers insuring £260 billion of toxic loans it acquired via its government-brokered merger with HBOS.
The UK government’s stake has jumped from 45% to 65% under the terms. Lloyds has also agreed with its new owners that it will lend an additional £28 billion over the next two years.
It’s a sorry turn of events for an institution that can trace its roots back 250 years, and which was once rightly regarded as one of the UK’s safest – and most boring – stock market investments.
This was a bank which paid a reliable 8-10% dividend for years, ignoring calls for the payout to be scrapped and the money reinvested in proprietary operations or other ill-fated wheezes dreamed up by Wall Street during the boom years.
With UK interest rates now down to 0.5% and the dubious-sounding quantitative easing moving from a standing joke to official Bank of England policy, there’s no doubt we’re living through enduring historic times.
If like me you ever wondered what it was like to work through the 1970s Winter of Discontent, let alone the Great Depression, you may soon be repenting your curiosity at your leisure.
Only today we learn that the UK Government is upping its stake in Lloyds (a company whose shares I once prized for their stability, before selling prior to the HBOS merger) to 65%, in return for insuring £260 billion of toxic debt.
When a 200-year old bank has to be repeatedly bailed out by the Government, you know you should be keeping the newspapers for your grandkids.
Yet let’s not get too downhearted.
For those still building up their savings for retirement (and I suspect that’s most Monevator readers), low prices for assets are a net positive if the world doesn’t end.
Warren Buffett has said this many times, and he said it again this week in his 2009 letter to shareholders:
We enjoy such price declines if we have funds available to increase our positions. Long ago, Ben Graham taught me that “Price is what you pay; value is what you get.” Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.
“Funds available”, eh Warren? Ah, but there’s the rub.
I’ve been invested throughout most of the bear market, even as my income has been hit by some fun yet unprofitable side projects (not least, this very blog!) and a slight drying up of the consultancy and freelance income that pays my bills.
My hope is that the renewed misery that pushed the FTSE 100 below 3,500 this week will last until April 6th, and the start of new ISA season.
I’ll be putting in my full £7,200 ISA allowance and keeping my faith in shares for the long-term.
As for the short term? Pick a number, any number…
