Written for publication in Scotland on Sunday
Sunday 16 October 2016
Mark Twain said October was a bad month to invest in stockmarkets. Seems on the surface at least he wasn’t far wrong. I started as an IFA in January 1973. Ten months later in October the FT Index fell, and over the next 15 months it fell 74%. Pure coincidence.
On a Black Monday in October 1987 it happened again. The FTSE fell over 20% in a day. Back in 1929 in October the Wall Street Crash began triggering the 1930s’ depression. In October 1917 a stockmarket fell to zero. In Russia. Something to do with a revolution.
To be fair Mark Twain hedged his bets adding the other 11 months just to be on the safe side, “marking” his card as a pessimist or Bear as they’re known these days.
An October consensus again reckons equities are dangerous for investors. Interest rates are near zero and even worse. Over $13 trillion of private investor money sits in negative yielding bonds. That’s where you pay governments for the privilege of using your savings. Daft or what?
September 2008, not October is said to be still to blame for all this fear. But it’s probably our recency bias as investors and constant doom mongering that won’t let us forget, despite positive stockmarket performance since.
No matter what critics say patience and perseverance can ride you through these shocks and falls. I’ve seen it personally over the last 43 yrs. Shares go down sharply as well as up slowly, as we keep being reminded. But shares also pay income, known as dividends. And over time they’re powerful protectors of wealth.
Study the last 10 or 20 years. The FT All Share Index we watch on telly, in 10 years is only up 24.4% thanks to the 2008 Crash. But adding in reinvested dividends it’s up 77%. Over 20 years the Index is up 94%. Add in reinvested dividends and you’re up 270% (Source: Lipper).
A growing number of investors are flocking to buy funds that cheaply track the Total Return Index . They claim active managed funds aren’t worth the extra cost. Tell that to long term followers of Neil Woodford who until not that long ago was at the helm of Invesco Perpetual High Income fund. Net of all charges and with net dividends reinvested it’s up over 10 years over 103%, and over 20 years 697%. (Source: Lipper)… Yes really.
What’s interesting for income seekers is that over that 20 years which included the Dotcom bust and the Financial Crisis when the FT saw two 50% falls, dividend pay outs from Neil’s fund fell much less. And actually rose the year following the 2008 crisis. (Source Invesco Perpetual).
These days I would think about using Global Income funds. Have a look at James Harries’ record at Newton over the last 10 years. He launches a new Global Income fund in November at Troy. It might pay you dividends to join him on his new journey.
An edited version of this article appeared in Scotland on Sunday on Sunday 16 October 2016.