BBC Radio 4 Money Box – 11 April 2012: What I Would Have Said To Stephen From Shropshire

Listening to last Wednesday’s Money Box Live programme on BBC Radio 4, I found myself becoming increasingly irritated at the lack of insight or helpful comment provided by the programme’s panel of guest experts. I have therefore decided to provide my own response to Stephen from Shropshire.

The subject of last Wednesday’s Money Box Live was ‘Saving and Investing’ and the show’s host, Vincent Duggleby, was joined by Kevin Mountford, who is head of banking at moneysupermarket.com, Carolyn Black, Investment Manager at stockbrokers Redmayne-Bentley, and Justin Modray from Candid Money.

My irritation with the programme began with the very first caller who was Stephen from Shropshire. Stephen stated that he is “due to receive a lump sup from a pension fund and I’m just wondering on the best way to invest it”. When asked what he hoped to achieve with the money, he said that he was looking to grow the 50k lump sum but that at some stage in the future he hoped that it would provide additional income.

The panel gave the usual caveat that where he chose to allocate the money would depend on his risk tolerance, which of course is true, and obviously it’s not possible to give tailored advice without a great deal more knowledge of Stephen’s circumstances. However, I still found the panel’s responses very disappointing:

“You can structure a portfolio with a selection of collective investments focusing on UK and international equities with a slight growth bias at the beginning, but then when you get the nod you can switch it very gradually to more income generating assets without having to do a whole restructuring… focus on the UK but don’t forget there’s great opportunities for a growth portfolio in some of the emerging markets.”

“Markets are all over the place so the one thing I wouldn’t do is rush to make a decision. Maybe start by finding a good cash home for the money and buy a bit of time over the summer and do a bit more research, perhaps into funds. The simplest answer is to go for a few trackers for example that track markets, for the stock market part, and then maybe look at having some exposure to some commodities, perhaps a bit of gold and also corporate bonds for example.”

“Keep reading the weekend press and listening to Money box…”

What I found really frustrating about this is the complete lack of insight. Since it’s not possible to give specific recommendations why not provide Stephen with the kind of insight that he can’t get from the mainstream press.

What I would have said to Stephen if I were on the Money Box Live panel

Before you invest your 50k you need to understand several important things:

  1. Markets are cyclical, and stocks are in a secular bear market (long down trend) and have been since the year 2000. Since then stocks have only lost 10 or 15%, but that’s in nominal terms. In real terms, that is adjusted for inflation, stocks have lost more than 44% of their value. Crucially this type of bear market lasts anywhere from 14 to 20 years, which would mean this secular bear market should end by around the year 2020. However continual government/ central bank intervention in the markets in the form of massive money printing and bailouts could extend this bear market well into next decade. With this in mind investors should stay well away from index trackers and instead find funds such as those that invest in energy and mining that have vastly outperformed the major market averages.
  2. The bond market is in a bubble and is nearing a major (multi-decade) top. Investors entering the bond market not only face the likelihood of significantly lower bond prices in the years ahead, they are also exposing themselves to massive potential counter-party risk. Not to mention the fact that the returns they are getting are for the most part deeply negative when adjusted for the rate of inflation.
  3. Gold is in a secular bull market (long up trend) and has risen in value every single year for the past 11 years returning an average of 17.7% per year.
  4. The policy of financial repression which has been adopted by the British government (and many others around the world) has redefined the conventional notion of risk. In this environment the nominal value of assets quickly becomes much less relevant. What matters is their real value i.e. their value adjusted for inflation. Also the government’s numbers are manipulated to understate the true rate of inflation. As a result your number one priority ought to be wealth preservation. In other words, in this environment it’s about “return of capital” not “return on capital”.
  5. I would then also recommend some books Stephen could read, such as: Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and the Government Bailout Will Make Things Worse. By Thomas E Woods. Or Currency Wars. By James Rickards

It’s not just Money Box that I have a problem with. Financial media as a whole is filled with dogmatic falsehoods such as “over the long-term stock markets always go up” or “cash and bonds are the safest investments” or “house prices always go up”. The problem I have with these types of assertions is that they are followed without question, and without recognition of today’s financial, economic and geopolitical landscape.

It’s like going sailing without taking into account the current weather conditions, and instead saying “typically the wind is light at this time of year”. Never mind the fact that the met office is forecasting gale force 8 and that you can see the storm clouds gathering with your own eyes.

Investors owe it to themselves to do their own homework so that they can become there own financial advisor.

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