So our PM’s time in office was bested by the shelf life of a lettuce… but it’s not all bad news if you’re still early on your Financial Independence Campaign.
At least UK funds might be available at a decent price.
Dude, we’re looking at rolling blackouts and insane inflation and you want to write about buying the FTSE?!
There are many reasons to have a sense of humour failure at the moment.
It’s probably true that some kind of energy shortages will hit this winter. Your bill will go up but your thermostat will be way down compared to last year. A smart investor will have a few candles lying around. I anticipate that sales of torches and AA batteries will go through the roof.
Inflation sucks. Really sucks. I don’t think it’s transitory, either – my wet-finger estimate is that we’re looking at a couple of years of prices shooting up to account for the end of globalisation and to absorb the metric ton of figurative government debt we’ve created.
If you really want to be pessimistic, check out my last post on when the pound took a sh*t and died.
Hold up – the end of globalisation?
OK, bit of an overstatement, but yes: I don’t think that globalisation as we know it now will continue. This is based on:
- Russia’s wholesale invasion of Ukraine and a return to a sort-of Cold War posture.
- The USA deciding that actually it doesn’t want to be global policeman anymore (and Afghanistan reinforcing the lesson from Vietnam that global policing isn’t that effective anyway).
- China not really re-opening for business.
- Britain not really being a global leader anymore.
- Lack of leadership in the Eurozone.
- Significant rise in state nationalism across the developed world, which historically is bad for cooperation and free trade – see Italy, Hungary, the UK, France, Germany, the USA… you get the picture.
Yes, trade will probably continue across borders and so on, but the lesson from the pandemic is that people and countries get mean when it comes to discomfort. Remember the fighting over vaccines? My prediction is that we’ve got a decade before true cooperation between countries starts happening again.
In the meantime, states are going to want to start looking at sovereign capabilities and trying to bring stuff in-house (well, in-country). Which sucks for Britain, as we don’t really have any – we’ve based our present economy on service industries.
Britain really needs to rebalance its economy and prepare for the next few decades, but that may or may not happen under the present string of government incompetents and the opposition parties that aren’t looking much better.
Just because the outlook sucks, doesn’t mean you shouldn’t try to position yourself as best you can
Timing always sucks. There’s always some reason to be pessimistic, something crappy is always happening somewhere else. I can’t change that.
What I can do – and I think you should do – is try to make the most of the opportunities presented. And, yes, there are opportunities.
The FTSE 100 is presently at a p/e ratio of 9.9x.
If you want to swot up on p/e ratio, have a look at my post on it. Short version: on average, companies are trading at just under 10x their earnings.
The FTSE 100 isn’t the only option – there’s the FTSE 250, FTSE All-Share, FTSE Small Cap etc – but the FTSE 100 is the most famous.
9.9x sounds like a lot, right? Well, it is – but I dimly recall from reading The Intelligent Investor (I really should write that review up, but in my defence it was a looong read) that the famous investor Benjamin Graham targeted a p/e of 15 or lower, with up to 20x for growth companies or utilities, as ideal investing territory.
There’s an argument that what’s good in the US might be less good in the UK, but on the whole we can be reasonably comfortable that a one-third drop from a known target average declared by Warren Buffet’s mentor is a pretty good deal.
If the economy is in rag order, won’t that affect stock prices too?
So here’s the thing: equity prices aren’t related to the host economies. Well, not really. A market price is a measure of confidence in an economy, sure – people flee to safe havens when times look tough or sell shares to remain a bit more liquid and pay off debts.
That’s not a criticism by the way. The wavy seas of economic fortune catch us all at different times. Sometime you need to sell liquid assets at a loss because of whatever life event you were in the middle of when the seas got rougher. No judgement, it happens.
Anyway, people still need to buy things, so I doubt every public company listed in the UK is going bust. Once the world levels out, Zelensky kicks Putin in the balls and the Far Right realise they don’t have much of a clue after all, big inflows of capital shall probably return to the markets.
For now though, if you’ve got spare capital to deploy, I reckon it’s a great time to be buying UK shares and indices.
What I’m doing
So I invest with the robo-investor Wealthify anyway at the moment as my primary investing vehicle – it’s kind of a result of being in Guernsey, where we don’t have as many licenced stock brokers that I can access. However, the plan I’m on has a big leaning towards the UK and US anyway, so I’m actually making the most of this situation.
I also have a stock portfolio on Trading212. I use that for picking individual companies mainly (although I have an old ISA on it with an index fund in) as an extra to my Wealthify account. Each month I’m picking a selection of equities that I see as a value portfolio and putting about £100 into the account, and they’re mainly UK companies right now.
My investments are set up so that Wealthify receives £1,600 per month the day after payday. If I can maintain that savings rate (oof!) on top of my pension contributions then I reckon the boat plan will be an option in 7-10 years. My partner is also investing, albeit her commitment is a bit less formal, so this should work.
Here are some affiliate links to Wealthify and Trading212 for anyone who’s interested. We both get a benefit if you sign up through my links, but honestly no pressure if you want to shop around.
OK but I’m scared by all this uncertainty…
Me too!
I am relying on the markets to form the bulk of my financial independence campaign, but it’s not the only place I put my money. After reading The Psychology of Money by Morgan Housell, I’ve come around to the view that a reasonable plan that helps you sleep at night is better than an optimal plan that makes you feel uncomfortable.
Frankly, blind faith in a market doesn’t make me feel comfortable at all, no matter what the data says. I like to diversify outside of it.
So, on the side, I’m still putting small amounts into non-stock market investments. I’ve built a small but reasonable crypto portfolio from the start of the year, which I’m adding small amounts to when I come in under budget for the month. I’ve also decided to add a bit to my gold investments now that prices are starting to cool, mainly in the form of gold sovereigns. Storage is an issue, but it’s reassuring to know that I can withdraw and physically hold my gold; and you know what? That works for me.
So the short version is…
I’m buying UK shares and indices as I think they’re undervalued and it’s still early in my financial independence campaign.
Inflation sucks, the world is a bit beaten up right now… but I’m continuing to invest and I think it’s a good time to be accumulating.
Then, on the side, I’ve got a few small side pots to keep me sane in a world of chaos.
