Holly's Blog: The apocalypse and an unintentional Dolly Parton
20 May, 2022
Continued bad news on the financial front this week as inflation marches on to hit a daunting 9%. When the Guv’nor of the Bank of England – not a man renowned for hyperbole or an enthusiasm for drama - uses the word ‘apocalyptic’, you know this is not your average humdrum week. Consumer confidence has hit a new low and yesterday Wall Street had its worst sell-off in 2 years. Oh goody.
At a time when any cash savings are therefore being plundered and eroded, we have to find ways to make our long-term savings work harder.
It’s not easy to find things to be excited about and the good old days of being able to largely rely on the S&P 500 and a handful of tech stocks for growth are over.
We can ride out the current storm in one of three ways
The first is to make sure you are sensibly diversified with a good mix of things and then to do nothing. This is particularly the case for people with long-term horizons of 5 years+. The hardest discipline is to keep drip feeding in as much as you can, as often as you can. Because the stock market is currently on sale.
You can set up a monthly direct debit into an ISA or a pension, plop it all into a ‘multi-asset’ fund or a ready-made portfolio if you can’t be bothered to try and be a financial genius, and just let it do its thing.
Second - remember that for most of us, for every 80p you chuck into a pension, the Government gives you an extra 20p. And yet another 20p if you’re a higher-rate taxpayer. (The numbers are a smidge different in Scotland but it’s the same basic principle.)
You won’t get that from some weedy cash savings account with your bank. Those kind of returns in today’s environment should make pensions the sexiest game in town.
Of course it’s then tied up till you’re at least 55, so the trade-off for this lovely Brucie Bonus is a loss of flexibility. That’s the deal.
The third option – and this won’t be for most of us – is to cherry pick sectors or regions and buy or top up holdings progressively as the stock market goes on sale, and some interesting opportunities emerge. More on this below.
An unintentional Dolly Parton
Last night I went to a black-tie awards thingy for Investment Trusts. My friends, they were swinging from the rafters! Like the after party at an Ozzy Osbourne gig! I had to squeeze into my posh frock which has been hanging neglected in a cupboard for three years, untouched and unloved and guess what? It had SHRUNK! 🤣 So by the time I managed to get the zip up, in the loos at 6.15pm, let’s just say the lack of space created a rather embarrassing Dolly Parton effect.
Nonetheless I put on my most erudite facial expression and had a fascinating chat with the lovely Ed from New York who runs the BlackRock Latin America Investment Trust.
Over 85% of the trust is in Brazil and Mexico so it’s concentrated, with much of the region still pretty uninvestible – I imagine governance is somewhat hair-raising in Bolivia and Uruguay. The region itself is super resource heavy. Chile and Peru produce about 40% of the world’s copper. Nickel, iron ore, silver, lithium and more come from the region. And these resource riches are putting the area back on the map. Suddenly everyone wants to talk about Latin America as an interesting regional opportunity, after a number of years in the shadows.
I had a quick squizz at the performance this morning. Let’s be clear – it’s volatile. Up 26% in 6 months. Down 8% over 3 years. And pretty much flat over 5 years.
By comparison, my lovely faithful old friend, the HSBC American Index Fund is down 10% in 6 months. Up 44% over 3 years. And up 85% over 5 years.
And that, dear reader, is why we always bang on about diversification. Because unless you are Nostradamus, the only thing you know about the future, is that some things will return 26% in 6 months and others will lose 10%. And you are very unlikely to predict it right.
I close this week with one final depressing piece of news. Clive Myrie gave a talk at the dinner, and dashed my hopes by confirming he has turned down a place in this year’s Strictly. Gutted. 2022 would have been less apocalyptic with a paso doble from Clive to look forward to!
Have a great weekend
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