/ MYTHS /
40%
20%
TSE TOPIX (26.63%)
Nikkei 225 (-17.98%)
0%
-20%
-40%
-60%
n1
-80%
Source: FE Analytics
It is true stock markets generally
rise in the long run – the Barclays
Equity Gilt Study shows equities
have outperformed cash in 75 per
cent of five-year periods since 1900
– but Khalaf says the important
question is how this return
compares with other assets you may
have invested in.
Juliet Schooling Latter, research
director at Chelsea Financial
Services, says that even a market
like Japan, which has wrestled with
deflation for more than a generation,
can offer investors good returns –
provided you can find good stock-
picking managers.
“Over the past 20 years, the Topix
has returned 90.6 per cent and the
Nikkei 225 30.76 per cent. But the
average IA Japan fund has returned
97.05 per cent and the average IA
Japanese Smaller Companies fund
284 per cent,” she explains.
Jason Witcombe, director of
Evolve Financial Planning, points
out investors won’t be putting all
their money in a single economy, let
alone Japan, but says it does provide
diversification.
“The general founding principle
is that risk should be rewarded,
so it is reasonable to work on the
assumption that equities will
outperform cash,” he adds.
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“There’s a belief
that a monkey,
child or darts
randomly
thrown will be
able to beat most
fund managers”
SAFE HARBOUR
What is harder to determine, says
Witcombe, is which “safe haven”
to park money in in times of great
uncertainty or volatility. It depends
on your own definition of safety
and more importantly when you
need to access those funds. Cash is
king in the short term, but is likely
to be ravaged by inflation and tax
in the long run.
“Cash is the only safe haven,”
says de Bunsen. “While gilts are in
theory risk-free, valuations make
them anything but right now.”
With inflation at 2.7 per cent and
cash deposits attracting little by
way of interest, security comes at a
fairly hefty price, however.
Many investors turn to gold in
times of trouble and though valid
as a diversifier or a store of value, it
can be volatile and its correlation
with other assets changes all the
time. De Bunsen says sometimes
it will get you out of a bind, but on
other occasions it won’t.
From its peak of $1,800 several
years ago, gold now trades at
$1,250 an ounce. That 30 per cent
drop is one investors may not be
so tolerant about in other asset
classes.
If you’re sold on gold, Schooling
Latter suggests full diversification
benefits come from buying the
physical asset through ETFs or
websites such as Bullion Vault.
But beware – gold ETFs
experienced a lot of speculation
when the price was on the rise and
as it fell, many traders sold out,
driving the price lower.
“You could very easily get caught
up in a ‘sentiment trade’,”argues
Schooling Latter. “It is useful
to have a little exposure in a
diversified portfolio, but it’s
definitely not safe.”
ST LEGER DAY CONSPIRACY
Every year, the column inches turn
to feet when it comes to one adage
– getting out of the market over
summer to avoid loss, all based on
the old saying: “Sell in May and go
away. Come back on St Leger Day.”
Occasionally, numbers are
produced that may back up this
story, but none of our experts give
it any credence.
“Looking back over the past
three decades, there is no pattern
to suggest the theory works,” says
Schooling Latter. “It’s just pot-luck
and investors are as likely to miss
out on gains as miss out on losses.”
She adds that using the FTSE All
Share as a yardstick, you would
have been better off in 20 years
out of 31. In 2016, the market rose
8.74 per cent between May and
September, despite Brexit.
Going away for the summer
simply doesn’t happen in this fully-
connected 21st century, she adds.
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AVOCADO TODAY, AVOCADO
TOMORROW
Khalaf says it is total nonsense
and the broader point about
stepping out of the market is not
something easily achieved with
any level of accuracy.
“There are sell-off costs, but it’s
also not very easy to predict when
to come back into the market and
be confident that your decisions
will be correct. It is not a great way
to invest.”
There has been a spate of critical
stories about millennials wasting
money on avocado on toast and
“posh” coffee, while complaining
about their financial position.
Lee Robertson, managing director
of Investment Quorum, is a believer
in the phrase “many a mickle makes
a muckle”.
“When I was young we didn’t
have the discretionary spend they
do today and there was no internet
or Sunday shopping,” he says.
He adds that many younger
people simply don’t know where
their money goes, as spending small
amounts on apps, coffee and so on is
GROWTH OF £50 A MONTH INVESTED
IN INDEX OVER 20YRS
30,000
25,000
FTSE All Share (£26,120.66)
20,000
15,000
10,000
5,000
0
l0
Ju
PERFORMANCE OF INDICES SINCE 1990
Source: FE Analytics
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draining their resources without
them realising it and they would
be better off putting some of it
away.
“Get your money invested earlier
as pound/cost averaging makes
sense in the long term,” he says.
Schooling Latter adds: “If you
spend £2.50 a day on coffee, five
days a week, giving it up would
give you that £50 a month to
start investing. The power of
compound interest is considerable
and it has many lessons to teach
investors.”
Though this last point is a simple
concept, Khalaf says the industry
has to shoulder some of the blame
for making it more complex.
“We often talk about the finer
points of active versus passive,
platforms or ISAs versus SIPPs, but
the biggest determinant of what
your nest egg will be is how much
you actually save into it,” he says.
“Make savings while and where
you can. Even from posh coffee
and avocado, as you will probably
want some of these in retirement.”
Investing £50 a month into the
FTSE All Share over the past 20
years would have resulted in a pot
of £26,120, which initially sounds
impressive. However, with the
average first home in London now
going for £400,000 and requiring a
deposit of £90,000, is it really just
millennials who need a lesson in
separating fact from fiction?
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