How safe is your bank?
By Pauline Bowden - Topics: Banking, Investment Risk, Spain, Uncategorised, United Kingdom
This article is published on: 27th January 2017

27.01.17
Which bank? Which jurisdiction? As more amazing stories come out about the world’s banks, we have seen a shift from Deposit Accounts being a low risk investment, to a much higher rated risk. So what exactly does each jurisdiction offer as security against your bank going bust?
Isle of Man |
Personal / Company Account |
50,000GBP / NIL |
UK |
|
75,000GBP
(from 31st January 2017, proposal by
Government to increase to 85,000GBP) |
Spain |
|
100,000euro |
Jersey |
|
50,000GBP |
Guernsey |
|
50,000GBP |
Gibraltar |
|
100,000euro |
Many people in this area of Andalucia have bank accounts in Gibraltar, the Isle of Man, Guernsey or Jersey. Of the above list, apart from Gibraltar, these jurisdictions have the least protection for the account holder.
I often write about spreading your risk, by investing in different asset classes. Perhaps now we should also spread our bank accounts and have smaller deposits in more banks, in more jurisdictions.
It can make life a little more complicated, but it makes financial sense not to put all your eggs in one basket. At least then, if one egg gets broken, you do not lose all of them!
Holding cash as an asset class is no longer a “safe bet”. With interest rates so low now, the real value of the capital is being eroded by inflation. People that relied on the income from deposit accounts have seen their disposable income fall drastically, especially if they are sterling investors in receipt of sterling pay or pensions. Many are having to eat into their capital to maintain their lifestyles.
Alternative investment strategies need to be considered in order to protect the wealth that you already have and maximise the returns from that wealth.
Coveting the shiny stuff – Gold
By Gareth Horsfall - Topics: BREXIT, Investment Risk, Investments, Italy, Saving, Uncategorised
This article is published on: 7th September 2016

07.09.16
Dear Readers, please forgive me for I have sinned. It has been quite some time since my last post and during this time I confess I have been having impure thoughts.
I have been dreaming that the UK did not vote to leave Europe. I have been dreaming that Sterling had not fallen 12% against the Euro since June 23rd and that pasta was not now 10% more expensive in the UK, I have been having impure thoughts about low(ish) inflation in the UK and not rampant price increases after BREXIT. Lastly, I have been dreaming that interest rates would rise and not fall further into negative territory, basically charging customers to hold money with them.
Forgive me for my sins and lead me not into new temptation…………GOLD
There is a lot of talk going around at the moment about gold being the best investment to hold and certainly since BREXIT it has proven its case. However, gold has some signifcant shortcomings alongside other forms of investment. Essentially, it is of pretty much no use and it does not produce any yield. True gold has some decorative and industrial uses but demand is limited and doesn’t really use up all of the production. If you hold a kilo of gold today it will still be a kilo of gold at the end of eternity (taking into account any chance events which may affect the gravitational effects on earth).
THE INVESTMENT CHOICE DILEMMA
PILE A
Today the worlds total gold stores are approximately 170,000 tons. If all this gold was melded together it would form a cube of about 21 metres per side. Thats about as long as a blue whale. At $1750 per ounce, it is worth about $9.6 TRILLION.
PILE B
Warren Buffet, who is not a fan of gold as an investment, is famously quoted as saying that with the same amount of money you could buy ALL US cropland (which produces about $200 billion annually), plus 16 Exxon Mobils (which earns $40 billion annually). After these purchases you would still have $1 trillion left over. (You wouldn’t want to feel strapped for cash after such a big spending spree, so best to leave some spare cash lying around)
So the Investment choice dilemma is who, given the choice, would choose PILE A over PILE B?
In 100 years from now the 400 million acres of farmland would have produced an immense amount of corn, wheat, cotton, and other crops and should continue to do so. Exxon Mobil will probably have delivered back to shareholders, in the form of dividends, trillions of dollars and will hold assets worth a lot more. The 170,000 tons of gold will still be the same and still incapable of producing anything. You can cuddle and hug the cube, and I am sure it would look very nice but I don’t think you will get much response.
So, taking all this into consideration, you would be forgiven for thinking that gold really doesn’t have a place in anyone’s portfolio. I think you would be wrong.
Gold may not produce any yield, but with people in Asia, especially China and India, gold is very popular. In addition, it is also proving very popular for nearly ALL central banks around the world. Are all they all going mad, or do they have specific reasons for holding gold?
Well, despite Warren Buffets’ musings above, gold has to be seen in todays world as another form of money as central governments continue to print more traditional money, uncontrollably, and the paper currencies that we use in everday life become more and more worthless.
We must remember that the history of gold is that it rose, on its own, as a tradeable form of money in the world. No one has been forced into using gold as a form of money, whereas paper money is controlled by the state and has never been adopted voluntarily, at any time.
So this is where Waren Buffets argument falls down, because actual money in itself has exactly the same characteristics as gold. Its value! (Gold has some minor commercial uses, but its true value is in its store of value). Therefore, it should not be considered an investment, but actually another form of money/currency. In its basic form it is a form of barter and exchange.
Unlike paper money which can just be created without limit and at next to no cost, gold is both scarce and expensive to mine. It takes 38 man hours to produce one ounce, about 1400 gallons of water, enough electricity to run a large house for 10 days, upto 565 cubic feet of air under pressure and lots of toxic chemicals, cyanide, acids, lead, borax, and lime. (Just writing this makes me feel sick about the environmental impact of mining gold).
So, in summary the problem with the PILE A and Pile B scenario is that it assumes that gold is a form of investment, whereas in reality it should be considered another form of money.
For 6000 years gold has been an effective store of value.
The correct comparison that should be made is gold versus cash. Imagine a gigantic pile of cash. This pile of cash would be as equally inert and equally unproductive as gold, in itself.
The only way you could earn anything from gold or cash, in this case, is by depositing it with a bank and earning interest, at which point you relinquish your ownership (it becomes the property of the bank) and you then become an unsecured creditor to the bank itself, i.e if the bank fails it has the legal right to take all your gold and cash. Sound familiar? It might be better to hold true gold in a safe at home!
The question is whether you invest directly in gold or the gold mining companies themselves?
Timing the markets
By Pauline Bowden - Topics: Costa del Sol, Investment Risk, Investments, Spain, Uncategorised, wealth management
This article is published on: 29th August 2016

29.08.16
Staying the course
Every market cycle has both up days and down days. Often, a few very good days account for a large part of the total return. Staying the course ensures that investments will be “in” the market on the good days. Some people try to time market movements by selling stocks when they think the market is about to decline and by buying stocks when they think the market is about to rise. Resist being a market timer. By trying to time the market, you potentially miss out on market rallies that could substantially improve your overall return and long-term wealth. Thus, what’s most important is not timing the market, but rather time IN the market. Staying the course when confronting difficult markets may prove very rewarding in the long run. Consistently predicting which days will move in which direction, though, is virtually impossible and can be very costly.
Diversifying your portfolio
Diversification may reduce the overall volatility of your entire portfolio, thereby helping you achieve greater long-term returns. It is important to remember, however, that diversification does not protect against loss in broadly declining markets. Like markets in general, different investment styles come in and out of favour in Cycles Rather than trying to predict which investment is likely to be the best performer in the future, investing in a well-diversified portfolio can help you to seek returns whilst managing for volatility. Diversification strategies may be especially important in a volatile market environment, when sector rotations and market fluctuations happen continuously.