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Putting financial concerns in perspective

By John Hayward - Topics: Investment Risk, Investments, spain, wealth management
This article is published on: 25th February 2019

25.02.19

Perspective ( /pəˈspɛktɪv/)
To compare something to other things so that it can be accurately and fairly judged

We know that there is much going on with Brexit negotiations; we know that Trump is having issues with the Chinese and the Mexicans; and there are plenty of other things which we don´t yet know about, that could have an effect on our lives. When investing in stockmarkets, either directly or indirectly, there tends to be a focus on performance, whilst ignoring all other financial factors such as interest rates and inflation. It is regularly reported that markets are up, down or flat. It is rarely pointed out that interest rates have been low for a long time and that inflation has been consistently eating into the value of savings. There is also the fact that shares can receive dividends, which is pretty much ignored in reporting.

Another point to consider for those receiving pensions (or other income) from the UK in pounds, but spending in euros, is the GBP/EUR exchange rate. In this case, fluctuations in the exchange rate can seriously affect your disposable income.

In order to clarify my point, the charts below illustrate the behaviour of these factors over the last 15 years. This period includes arguably the worst period for all aspects over the last 15 years: 2008 and 2009.

I have accessed the information that makes up the basis of these charts from a variety of sources(*).

Interest Rates and Inflation

Interest Rates and Inflation

GBP/EUR Exchange Rate

GBP/EUR Exchange Rate

FTSE100 Index Level

FTSE100 Index Level

Comparison: inflation rate, interest rate and annual percentage changes in the GBP/EUR exchange rate and the FTSE 100

Comparison: inflation rate, interest rate and annual percentage changes in the GBP/EUR exchange rate and the FTSE 100

So what do we learn from this exercise? Putting them all together, apart from it being a pretty busy chart, we can see that, in the financial world, things go up and down. Nothing amazingly newsworthy there, but it is appreciating the size and frequency of these movements, in either direction, which is key. Then it is a case of seeing how these movements compare with the other factors. For a British immigrant in Europe who is paid in sterling, there has been a 20% fall in the spending power of his pounds since 2004. Interest rates have been below 1% for 10 years. Inflation, on the other hand, has averaged almost 3% since 2004. Put all of these together and for the cautious investor, finding the right home for savings has been more than tricky.

As much as people may be fearful of investing in stocks and shares, the fact is that over time, especially in the last 15 years, people have seen good returns when a considered and careful managed approach is taken. For those who are nervous about putting their money directly into stocks and shares, but want to, or even need to, have their money grow at least at the rate of inflation, we feel that we have the solution. As you will see from the chart below featuring a fund available to both UK and Spanish residents, keeping on top of inflation has been possible in almost every year in the last 14 and people have seen their funds grow consistently but with only a fraction of the risk of stockmarkets.

A Solution

PruFund Growth

The Spectrum IFA Group has been operating in Europe for many years; I have been with them since 2004 helping my clients through the volatility described above. With so much uncertainty, why not see if what we have available to us will be of interest to you?

Let us help you to put everything in perspective.

* Sources
Interest rates – Mortgage Strategy
Exchange rates – XE Money Transfer
FTSE100 – Yahoo Finance
Inflation – Iamkate
PruFund – Prudential

No warranty is made as to the accuracy of any information on third party websites and no liability is accepted for any errors and omissions or for any damage or injury to persons or property arising out of the use or operation of any materials, instructions, methods or ideas contained on such websites.