Discussion Topic:
Find a chart of the FTSE index corresponding to the Nikkei chart discussed in the lecture. Looking at the chart, and where we are today, what happens next? If you had a portfolio to allocate between stocks and deposits in the Bank (paying almost zero interest), how would you allocate your portfolio?
Firstly, we must ask ourselves: What are we trying to achieve, and what level of risk are we prepared to undertake to achieve it?
Once this preliminary question has been answered we can determine the best approach towards success.
At this point, it is also important for us to acknowledge the current rate of inflation in the UK, 2.9%. More concerning though, is that the Bank of England expects this to reach a peak of 3.1% this October, far higher than the target rate of 2%.
(BBC News. 2017. UK inflation rate rises to 2.9% – BBC News. [ONLINE] Available at: http://www.bbc.co.uk/news/business-41238822. [Accessed 12 October 2017].)
With the inflation rate as high as it is, I believe it would be more of a challenge to justify allocating any sizeable sums of money as bank deposits, than indeed it would be to remain steadfast through any potential volatility.
Interest rates of 0.25% currently offered, as mentioned earlier, would actually begin to diminish our portfolio, as the interest rate fails to match the current inflation rate of 2.9% (0.25 – 2.9 = -2.65 %), with many “expecting it to peak at 3.1% in October, before dropping back next year….”(BBC News).
The notion of liquidating any and all of our stock market positions “just before BREXIT” is concerning. No doubt we would be joining a mass-exodus, in what would be a ‘buyers market’.
I would instead find a collection of industry leading and innovative companies, with a strong financial track-record, that I would be absolutely confident would make it through the uncertainties of BREXIT, in which to invest, and I would hedge my positions by investing in either a select few 5-10-year Government bonds (US/UK..), or a select few reputable Index tracker funds. With perhaps a 60/40(%) allocation.
Volatility may well be on its way because of BREXIT, but the FTSE 100/250 companies won’t all simply cease to trade overnight come Britain’s exit.
As Warren Buffett said, “I’d rather have a lumpy 15% return than a smooth 12%.”
Seth Wilkinson.
REFERENCES:
FTSE 50-year graphic
Telegraph.co.uk. 2017. Graphic: 50 years of the FTSE All-Share index – Telegraph. [ONLINE] Available at: http://www.telegraph.co.uk/finance/markets/9196093/Graphic-50-years-of-the-FTSE-All-Share-index.html. [Accessed 12 October 2017].
UK inflation rate:
BBC News. 2017. UK inflation rate rises to 2.9% – BBC News. [ONLINE] Available at: http://www.bbc.co.uk/news/business-41238822. [Accessed 12 October 2017].
Index Funds Boom:
Seth