LESSONS LEARNED
Throughout my childhood my mother instilled in me the need to avoid getting into debt. Now I know Aberdonian's have an ill deserved reputation for being "careful" with their money, but this was probably one of the most important lessons I ever learned. However, over time this type of thinking became unfashionable.
In the last few years a number of my clients have had to make withdrawals from their investments to bail out their children who had run up an unmanageable level of debt on credit cards. All of them laid down strict rules stating that this was only being done on the condition they cut up their cards and started living to a budget however hard that may be.
Living beyond ones means is a subject I have touched on a number of times in the last few years, and in Greece we have seen what happens when a nation has its credit cards cut up by its parent, in this case the EU. No doubt Angela Merkel is scolding the Greek premier at this very moment.
There is no doubt that the Greece situation has created a nervousness in the markets, but this is nothing we haven't seen before, and in fact bears close resemblance to the situation in Argentina a decade ago. Through a combination of runaway Government borrowing combined with a currency that was pegged to the US Dollar, Argentina became an economic basket case with rioting commonplace. However, once the Peso's ties to the Dollar were cut the Argentinian economy started to become more competitive and eventually stability returned. Now, Argentina's economy is one of the fastest growing in the world and in a few years they will have less Government debt than the UK.
I very much doubt that investing in Argentina, and Latin America was something most people would have considered ten years ago, and I must admit I was one of them. However, if they had done so, they would have received a return of 17.6% per annum from the Scottish Widows Latin America Fund which is one of the few funds that have been investing in this area over this period. This proves two things. Firstly, anyone investing for the long term should NEVER worry about short term fluctuations, and secondly it pays to invest in areas that are out of fashion.
I expect the situation in Greece to spread to some other EU countries in the coming months, and no doubt each occasion will result in worrying headlines and falls in markets. However, for the long term investor this does represent an excellent buying opportunity, and for those that already have their money invested, as Argentina has shown, nothing stays bad for ever.
As for the UK, until the new Government announces its first budget it is anyone’s guess how severe the austerity package will be, but no doubt we will all have to suffer some pain and it is unlikely we will see any cuts in tax rates for some time. However, I suspect that both here and in Europe, my mother's saving mantra will become more popular.
Steven Forbes
Managing Director
The above was published in The Herald
on Saturday 15 May 2010 as "Long term investors should look at areas out of fashion"
APRIL 2010 FACTS
MARKETS AND MANAGERS WE MET LAST MONTH
FTSE All Share
1 year return +32.0%
5 year return +17.8%
S&P 500
1 year return +37.8%
5 year return +2.3%
FTSE Eurofirst 300
1 year return +26.2%
5 year return -1.2%
JPM Emerging Markets Infrastructure
(Richard Titherington)
1 year return +56.5%
Since launch Sept 2008 +42.1%
UBS US Equity
(Tom Digenan)
1 year return +36.6%
5 year return +29.8%
Neptune US Opportunities
(Felix Wintle)
1 year return +27.2%
5 year return +96.9%
Invesco Perpetual Income & Growth
(Mark Burnett)
1 year return +32.1%
5 year return +27.3%
PSigma Income
(Bill Mott)
1 year return +25.5%
Since launch April 2007 -12.1%
(source - ft.com 4 May 2010)
Best Bank Accounts
West Bromwich Building Society paying 2.60% gross available only over the telephone and postal system with instant access.
Halifax Web Saver Extra Account paying 2.6% gross available only over the internet.
(source –Moneyfacts May 2010)
