"The announcement was made a day after the group suffered its worst ever one-day share price fall on revealing a massive uplift in the cost of its problems in Italy and downward revisions to its profit forecasts."
AS some of you know I'm an IFA . Premium Bonds can be a sensible & safe way of holding money, but shouldnt really be seen as an investment - maybe an alternative to cash isa;s - somewhere to keep your emergency fund & tax free but no more than £10k,
I'm visiting a husband & wife tomorrow for their annual financial review - both retired and have good pensions so income not an issue. Usually invest the max into ISA;s
Reviewed their ISA portfolios ahead of the meeting - medium risk couple - portfolios have approx 55% equities, 40% fixed interest & 5% property (needs a little bit of re-adjusting as the growth in American equities & the closure of some property funds have move them a bit out of kilter = but I'll talk to them & see what they say)
Anyway. his has grown 21% since last feb, hers by 19%...............his lost approx 4% the year before and hers stood still, so not always a bed of roses, but I know which camp I'd rather keep my money.
An interesting question arises from your post above, and nobody is better placed than you to give an opinion on it.
How today would you invest a pension pot? Not, presumably putting it all in Premium Bonds.
I am suspicious, short term, of the current levels of world equity markets, but the fact remains that ever since I started trying to understand personal investment - 30 years ago now - there have been dire warnings which sound a lot like yours. But despite short term big falls, which we can all reel off, most people will have found that steady investment in a broad range of investment but largely in equities, has been the best choice. And I think it comes down to one reason; there is so much money sloshing around, (for better or for worse) and it has to be invested somewhere.
As it happens my personal pension pot is largely in cash since I switched platforms a few weeks before Brexit vote and of course both providers dragged their feet, and I couldn't reinvest until after the vote, and markets have of course gone up ever since, defying expectations. So I have a current personal interest in how you would answer the question you've posed. (of course, i won't treat it as professional advice :-) )
Of course equities, etc go up and down with the whims and vagaries of the market.
BUT premium bonds only ever go one way - down - because there is no capital growth but there is inflation. All you get is the dividend or prize, call it what you will. Let's say you purchased £1,000 of premium bonds in 1967. The equivalent value today would be £16,808. But you'd still have only £1,000; a paltry sum compared with what you could have bought with it in 1967. Then, the current prize pot for premium bonds is 1.25% per annum and the chances of each bond "winning" something is 30,000 to one. Meanwhile an equity will be paying a dividend (usually). On FTSE100 stocks an average in excess of 3.5% per annum. So even if the value of your stocks went down 2% each year, on average, you'd still be better off than leaving money to rot in premium bonds. The importance of the dividend and re-investing it cannot be over-stated. In fact share price growth is a bit meh. Hargreaves Lansdown are fond (for obvious reasons) of pointing this out and calculate that the FTSE 100 has only grown by 171% over the past 25 years, but the return jumps to 561% when dividends are reinvested.
Now, as for @Dippenhall's dire warnings. I'm not so sure. (That probably means he's right!) QE is an odd one. No extra money was printed - it was all done electronically - but it's not really the right name. It's actually called The Bank of England Asset Purchase Facility. In other words, it merely swapped institutions' illiquid assets (Gilts and commercial bonds) for assets of a liquid variety, that is dosh. So, as the APF unwinds, the banks, etc will get their gilts and bonds back. It seems that is likely to be done on a drip feed basis and hopefully will not result in any shocks. I'm also of the view that although markets are high, most companies are fairly valued and will stay so until interest rates start to rise again.
It goes without saying, of course, that premium bonds are like Gilts in that it's just a way of lending money to the Govt. Premium bonds are just the Govt. ripping people off, like the lottery. There's a bit of history with the Govt. taking the piss.
In 1917 the Government issued a stock called 5% War Loan 1929 to 1947. It was to help pay for WW1 and as the title suggests, it was intended to be redeemed somewhere between 1929 and 1947. But in 1932 the Govt ran a conversion into 3.5% War Loan 1952 or after. It saved the Govt. money of course but people didn't focus on the words "or after". In fact the stock wasn't redeemed until 2015 (and then only because interest rates were so low). I suppose the moral of this story is beware a Government offering to take your savings off you. Chances are you'll get a better deal elsewhere.
Of course equities, etc go up and down with the whims and vagaries of the market.
BUT premium bonds only ever go one way - down - because there is no capital growth but there is inflation. All you get is the dividend or prize, call it what you will. Let's say you purchased £1,000 of premium bonds in 1967. The equivalent value today would be £16,808. But you'd still have only £1,000; a paltry sum compared with what you could have bought with it in 1967. Then, the current prize pot for premium bonds is 1.25% per annum and the chances of each bond "winning" something is 30,000 to one. Meanwhile an equity will be paying a dividend (usually). On FTSE100 stocks an average in excess of 3.5% per annum. So even if the value of your stocks went down 2% each year, on average, you'd still be better off than leaving money to rot in premium bonds. The importance of the dividend and re-investing it cannot be over-stated. In fact share price growth is a bit meh. Hargreaves Lansdown are fond (for obvious reasons) of pointing this out and calculate that the FTSE 100 has only grown by 171% over the past 25 years, but the return jumps to 561% when dividends are reinvested.
Now, as for @Dippenhall's dire warnings. I'm not so sure. (That probably means he's right!) QE is an odd one. No extra money was printed - it was all done electronically - but it's not really the right name. It's actually called The Bank of England Asset Purchase Facility. In other words, it merely swapped institutions' illiquid assets (Gilts and commercial bonds) for assets of a liquid variety, that is dosh. So, as the APF unwinds, the banks, etc will get their gilts and bonds back. It seems that is likely to be done on a drip feed basis and hopefully will not result in any shocks. I'm also of the view that although markets are high, most companies are fairly valued and will stay so until interest rates start to rise again.
It goes without saying, of course, that premium bonds are like Gilts in that it's just a way of lending money to the Govt. Premium bonds are just the Govt. ripping people off, like the lottery. There's a bit of history with the Govt. taking the piss.
In 1917 the Government issued a stock called 5% War Loan 1929 to 1947. It was to help pay for WW1 and as the title suggests, it was intended to be redeemed somewhere between 1929 and 1947. But in 1932 the Govt ran a conversion into 3.5% War Loan 1952 or after. It saved the Govt. money of course but people didn't focus on the words "or after". In fact the stock wasn't redeemed until 2015 (and then only because interest rates were so low). I suppose the moral of this story is beware a Government offering to take your savings off you. Chances are you'll get a better deal elsewhere.
QE has the effect of putting more money into circulation, it's effect is the same as if it had printed and handed cash to the banks.
Unlike printing money for the banks who then lend it to business and create economic activity, it's money that isn't producing anything. Don't forget, the idea of manipulating money supply is a relatively recent idea, embraced by Thatcher, and intended to do one thing only, control inflation up or down. QE was intended to increase inflation which in turn allows Central Banks to set appropriate interest rates to achieve equilibrium and prevent either hyperinflation or deflation. It hasn't worked, yet like the mad scientist we keep repeating the same experiment to see if it will work next time.
The solution may be to give the money direct to individuals to reduce debt and provide capital for business to invest.
As for investing for a return, no one knows where to go, there is no obvious value, and unless you set objectives for your investment you have even less idea.
It's a matter of luck going into cash to get the timing right, if you think prices are due to fall. Statistics have shown the stock market prices are always valued correctly averaged over time, what varies is the cycle over which you obtain value. For this reason I never worry about year on year performance as long as your time horizon for seeking value is over ten years, nor do I expect real returns above inflation to be any better than they have always been, around 5%.
If you get market returns over short periods in excess of 5% above inflation, assume only that they will be replaced by lower returns in future. Pension funds sell the excess returns for cash or bonds. That is "de-risking" by those who accept they are not wanting to take risk trying to beat historic market returns and are happy to achieve average market returns.
I would never pay a premium for taking risk unless the premium is likely to be rewarded, that means it has to be a performance related fee or a fee for sophisticated diversification of risk in a multi asset fund.
One of the reasons UK gilt yields are so low is an unintended consequence of another government policy - to make employers guarantee they would fund pension promises, rather than best endeavours, the position until Maxwell came on the scene. Schemes can only guarantee pension payments if they buy guaranteed revenue streams into the future. Only government gilts can do that, so pension funds demand for gilts outstrips supply and are bidding up the price of gilts (lower yields). Originally pension schemes were affordable because they ripped off leavers and could invest in equities. The lower the gilt yield the bigger is the pension fund deficit which means more cash has to be invested by the company to plug the gap. Investing the additional contributions in higher returning equities to plug the gap doesn't reduce the deficit unless it's invested in more gilts, so perpetuating a vicious circle.
Pension schemes will get back to solvency only when stock markets fall and gilt yields rise by a greater percentage. Only then will pensions be secure and company money will be invested for growth rather than wasted buying over priced government gilts.
The point is, don't wish for higher stock markets, wish for higher interest rates and higher inflation and be happy with 5% returns above inflation. A pension is a revenue stream supported by a cash pot, not just a cash pot. Living off £1m when interest rates are 5% means £1m is a good pension pot, living off £1m when interest rates are 0.25% is a crap pension pot, you need £20m for the same income. You might get better than market interest rates, but only by risking your pension pot entirely.
"The announcement was made a day after the group suffered its worst ever one-day share price fall on revealing a massive uplift in the cost of its problems in Italy and downward revisions to its profit forecasts."
I read the article. We got a 2.2% return on our investment last year and were happy with that. I also like that I can get my hands on funds immediately if needed and still hope of the big one coming up one day. Also, can't be arsed constantly looking around for a possibly better return elsewhere plus we know our money is safe. Doesn't suit some but suits us just fine.
PSB's with an average return of 1.25% or an instant access savings a/c paying 1%.
There's no right or wrong. You could win very little, you could win quite a lot, but on average you'll get a similar return, as a savings a/c. At least you get your stake back with the PSB lottery.
If you tied money up in a fixed term savings a/c, you should get a better risk free return.
Of course equities, etc go up and down with the whims and vagaries of the market. The point is, don't wish for higher stock markets, wish for higher interest rates and higher inflation and be happy with 5% returns above inflation. A pension is a revenue stream supported by a cash pot, not just a cash pot. Living off £1m when interest rates are 5% means £1m is a good pension pot, living off £1m when interest rates are 0.25% is a crap pension pot, you need £20m for the same income. You might get better than market interest rates, but only by risking your pension pot entirely.
only if you look at generating income from cash.
pension income drawdown has been one of the best ideas since the birth of annuities. I appreciate you need a sizeable pot to drawdown a decent income. but that could be said when buying an annuity.
I usually say that long term (20 years) you should be able to generate a modest 6-8% pa return with a balanced pension portfolio if you keep in invested when you come to retire/ Take 5% withdrawals & allow for the extra 2-3 % plus re-invested dividends to protect against inflation. Even a £200k pension pot will give you £10kpa , which alongside a state pension of £8k (which it will be soon) should give you £1500pm to live on. With the new flexability rules you can rake more now & reduce when you receive the state pension.
The old days of switching into cash the closer you get to retirement are long gone. Embrace the new regime.....
Premium bonds are like the lottery except you don't lose your outlay. They are a safe 'bet' I use mine for relatively short term holdings (6-12months) although I have had some for approaching 25 years. Put £5k in the bank for 6 months and you'll make what, £25, thats one premium bond win and of course you could get lucky. The worst that will happen is I won't win and be down £25, although that £25 i'd have paid tax on.
I've always been a fan of Share ISA's (those old enough will remember PEP's back in the day) on the basis that investing regularly over the long term you'll do OK. Look at a chart of the FTSE100 for instance, over any reasonable length (say 5-7 years) it's an upward trend, blips in-between but thats why you invest regularly not all at once.
The last 12-18 months has seen my S&S Isa and Pension increase by 30%+ partly striking lucky with the timing of switching my final salary pension into my SIPP and also investing a lot of that in the US markets, one of my US funds is up over 50% in that period, helped by Brexit and the exchange rate (Thanks!).
Prague, i'd get yours back into some equities, filter it back in over the next 12-18 months. Although if you are intending to start drawing it in the next 2-3 years maybe do it over a slightly longer period and keep some back in bonds & gilts.
One person's crystal ball is no better than another's. And there is no question that investing in equities in the long term almost always pays off. But I've just liquidated all of my equity-based investments in my ISA and SIPP and in an Australian pension that I have. I think the combination of Trump and Brexit will result in stormy seas over the next 24 months. I could be totally wrong but for now have put some money in Premium Bonds, and other "cash" investments, knowing that I will probably lose versus inflation, but maybe not as much as if I stayed in equities. Will have another look in 12-24 months time.
One person's crystal ball is no better than another's. And there is no question that investing in equities in the long term almost always pays off. But I've just liquidated all of my equity-based investments in my ISA and SIPP and in an Australian pension that I have. I think the combination of Trump and Brexit will result in stormy seas over the next 24 months. I could be totally wrong but for now have put some money in Premium Bonds, and other "cash" investments, knowing that I will probably lose versus inflation, but maybe not as much as if I stayed in equities. Will have another look in 12-24 months time.
Not a bad move and as you say oh for a crystal ball. Why not reinvest a proportion, each month, over the next 12-24 months. If you are right and the market declines you'll be buying back more for your cash? If wrong and prices stay as they are or go up you're getting back on the ladder.
Of course equities, etc go up and down with the whims and vagaries of the market. The point is, don't wish for higher stock markets, wish for higher interest rates and higher inflation and be happy with 5% returns above inflation. A pension is a revenue stream supported by a cash pot, not just a cash pot. Living off £1m when interest rates are 5% means £1m is a good pension pot, living off £1m when interest rates are 0.25% is a crap pension pot, you need £20m for the same income. You might get better than market interest rates, but only by risking your pension pot entirely.
only if you look at generating income from cash.
pension income drawdown has been one of the best ideas since the birth of annuities. I appreciate you need a sizeable pot to drawdown a decent income. but that could be said when buying an annuity.
I usually say that long term (20 years) you should be able to generate a modest 6-8% pa return with a balanced pension portfolio if you keep in invested when you come to retire/ Take 5% withdrawals & allow for the extra 2-3 % plus re-invested dividends to protect against inflation. Even a £200k pension pot will give you £10kpa , which alongside a state pension of £8k (which it will be soon) should give you £1500pm to live on. With the new flexability rules you can rake more now & reduce when you receive the state pension.
The old days of switching into cash the closer you get to retirement are long gone. Embrace the new regime.....
Who said anything about switching into cash. I was making the point that if you want to secure income the cost is driven by interest rates not the stock market. Investing for the biggest pension pot, leaving it in the stock market and drawing down the income needs more advice and support than the financial services industry can provide and carries more risk than any ordinary individual is capable of managing, unless they can afford to suffer the effect of adverse experience.
Drawdown makes it even more important that a balance between income streams and growth is maintained, but intuitively everyone equates success with capital value, not income producing value. It used to be the normal way of valuing wealth - Darcy's wealth in Pride & Prejudice was in terms of £10,000 a year (about £8m a year), what's the point of having a pile worth £100m one day and £50m the next, it doesn't produce income or worse still you have to sell it all for cash at a loss.
IFAs only do growth and measure capital values because that's all their customers understand or demand. The fact you seem to assume income = cash is symptomatic of the bias against any form of investment strategy outside of growth and capital volatility.
It's about managing risks that extend beyond just investment risk, risk of running out of money, risk of inflation, risk of living too long, risk of house prices.
Our first drawdown member in 2009 had a fund of £250k, he's drawn £110k in pension and his fund is worth £260k, and he hasn't been near cash or an IFA, despite many attempts to lure him away into attractive commission paying insurance schemes offering him more "flexibility and choice" at ten times the charges.
My thanks to everyone for the recent batch of posts, I'm just starting my close-retirement and retirement investing research and I've found all your comments stimulating, useful and thought-provoking.
Just thought I'd mention that in browsing for books on Amazon I've found there's a lot of free "Kindle unlimited" ones to choose from. In fact, there are too many to download and read them all but as and when I come across a good 'un, I'll post the title on this thread. I think you have to have a Kindle and an Amazon account to be able to download them. My first reading foray is into "investing for income".
To add my 2 cents to the conversation, I'm contemplating a strategy, once I've finished working, whereby I have enough cash set aside to keep me going for a couple of years and investing the remainder for income. The idea being the income stream replenishes the cash pot and having 2 years of cash means (hopefully) I don't worry (so much) about any short term falls in the capital value of my investing pot.
Some of my cash will definitely be in ERNIE........you have to be in it to win it!
Revolut for expats, here's an update on my experience:-
It was easy to join using my UK address and phone number and I paid £26 to have them UPS my new card to my Canadian address as I'm not back in the UK until next month.
The Revolut account can be topped up using a bank card, i.e. Visa debit, linking the card is as easy as scanning the card using a screen inside the Revolut app. You can't spend money on the card unless you've topped it up.
I found the app wouldn't scan one a debit card I have, it's for one of these simple & free online-only accounts, it seems like each card needs to be accredited like Visa?
I was able to scan in Visa Debit cards for UK & Canadian chequing accounts and can top-up Revolut using both. However, for me there's a bit of a twist in that the top-ups need to be in either £, US$ or €.....so when I top up using my Canadian card, my Canadian bank "exchange" my Canadian currency at something like mid-market rate less 2.5%. If I top up using my UK account there's no "fee" taken, it's £ for £.
So I guess for expats, if you can top-up in one of the 3 Revolut currencies there'll be no "fees" and when you use the card for purchases or at an ATM you'll get the mid-rate Google.
My conclusion at the moment is I've not found anything better than Transferwise for getting my Canadian money over to the UK.......1.2% fee and mid-rate Google.
Revolut for expats, here's an update on my experience:-
It was easy to join using my UK address and phone number and I paid £26 to have them UPS my new card to my Canadian address as I'm not back in the UK until next month.
The Revolut account can be topped up using a bank card, i.e. Visa debit, linking the card is as easy as scanning the card using a screen inside the Revolut app. You can't spend money on the card unless you've topped it up.
I found the app wouldn't scan one a debit card I have, it's for one of these simple & free online-only accounts, it seems like each card needs to be accredited like Visa?
I was able to scan in Visa Debit cards for UK & Canadian chequing accounts and can top-up Revolut using both. However, for me there's a bit of a twist in that the top-ups need to be in either £, US$ or €.....so when I top up using my Canadian card, my Canadian bank "exchange" my Canadian currency at something like mid-market rate less 2.5%. If I top up using my UK account there's no "fee" taken, it's £ for £.
So I guess for expats, if you can top-up in one of the 3 Revolut currencies there'll be no "fees" and when you use the card for purchases or at an ATM you'll get the mid-rate Google.
My conclusion at the moment is I've not found anything better than Transferwise for getting my Canadian money over to the UK.......1.2% fee and mid-rate Google.
Have you looked at "Azimo"? I believe TransferWise are going for the SME market where as these guys are pure b2c - with a focus on the developing world - so may be cheaper.
Never needed one myself so haven't compared prices.
2 x£25 for me. I have worked out that if this carries on for another 7 months (to a year from when I withdrew from a cash account and upped my PBs to this level) I will earn 1.3% net. Which would be better than any bank account.
Revolut for expats, here's an update on my experience:-
It was easy to join using my UK address and phone number and I paid £26 to have them UPS my new card to my Canadian address as I'm not back in the UK until next month.
The Revolut account can be topped up using a bank card, i.e. Visa debit, linking the card is as easy as scanning the card using a screen inside the Revolut app. You can't spend money on the card unless you've topped it up.
I found the app wouldn't scan one a debit card I have, it's for one of these simple & free online-only accounts, it seems like each card needs to be accredited like Visa?
I was able to scan in Visa Debit cards for UK & Canadian chequing accounts and can top-up Revolut using both. However, for me there's a bit of a twist in that the top-ups need to be in either £, US$ or €.....so when I top up using my Canadian card, my Canadian bank "exchange" my Canadian currency at something like mid-market rate less 2.5%. If I top up using my UK account there's no "fee" taken, it's £ for £.
So I guess for expats, if you can top-up in one of the 3 Revolut currencies there'll be no "fees" and when you use the card for purchases or at an ATM you'll get the mid-rate Google.
My conclusion at the moment is I've not found anything better than Transferwise for getting my Canadian money over to the UK.......1.2% fee and mid-rate Google.
Have you looked at "Azimo"? I believe TransferWise are going for the SME market where as these guys are pure b2c - with a focus on the developing world - so may be cheaper.
Never needed one myself so haven't compared prices.
Thanks for the heads-up @sinking feesh I looked at them, both on their site and through a google search.
I couldn't find a way to price them up and compare them to TransferWise, unless I signed up and initiated a transfer. The link on the Azimo website has an FAQ on their cost which says:-
"The exact fee will depend on where you’re sending money to and from, and by which method. There are no hidden fees with Azimo – we’ll tell you the total cost of your transfer, including the exchange rate, before you press the ‘send’ button."
On the Web, the reviews and comments around their transfer costs seemed to indicate that TransferWise is lower cost.
So as of now I'm leaving them be - if they can't quote a price or if it's hard to find the price, it leaves me with the feeling that their deal can be beaten?
Thanks anyway, it's good to know about them and I will keep an eye on them from time to time
The Premium (sic) Bonds annual prize fund is dropping from 1.25% to 1.15% with effect from the May 2017 draw. Making them even worse value for money.
Bearing in mind that premium as an adjective is supposed to relate to something that is of higher than usual quality, it would probably be better if this shabby product was renamed as something like Mediocre Bonds.
The Premium (sic) Bonds annual prize fund is dropping from 1.25% to 1.15% with effect from the May 2017 draw. Making them even worse value for money.
Bearing in mind that premium as an adjective is supposed to relate to something that is of higher than usual quality, it would probably be better if this shabby product was renamed as something like Mediocre Bonds.
Yes, I read they're also cutting the number of large monthly prizes too. Thing is, as one commentator put it, with all interest rates close to zero, ERNIE does offer a safe place for a bit of cash and there's also the chance of a big jackpot which we couldn't get with any other account.
The Premium (sic) Bonds annual prize fund is dropping from 1.25% to 1.15% with effect from the May 2017 draw. Making them even worse value for money.
Bearing in mind that premium as an adjective is supposed to relate to something that is of higher than usual quality, it would probably be better if this shabby product was renamed as something like Mediocre Bonds.
'Er indoors was given two Premium Bonds as a present by her grandparents when 'Ernie' started up in 1956.
She hasn't won a penny in all that time.
I started buying premium bonds rather than national lottery tickets when they increased the lottery numbers from 49 to 59. The rationale being that I can at least get my stake back with premium bonds which I obviously couldn't with the lottery.
The Premium (sic) Bonds annual prize fund is dropping from 1.25% to 1.15% with effect from the May 2017 draw. Making them even worse value for money.
Bearing in mind that premium as an adjective is supposed to relate to something that is of higher than usual quality, it would probably be better if this shabby product was renamed as something like Mediocre Bonds.
'Er indoors was given two Premium Bonds as a present by her grandparents when 'Ernie' started up in 1956.
She hasn't won a penny in all that time.
I started buying premium bonds rather than national lottery tickets when they increased the lottery numbers from 49 to 59. The rationale being that I can at least get my stake back with premium bonds which I obviously couldn't with the lottery.
I too haven't won a penny.
I echo that. I have a £1 premium bond bought for me on the day I was born by my later grandmother. I will be 50 at the end of this month & never won anything.
Got a bit of cash since my newborn came into the world. Thinking of chucking them into some premium bonds (just a couple of hundred) as a starter for him?
Comments
"The announcement was made a day after the group suffered its worst ever one-day share price fall on revealing a massive uplift in the cost of its problems in Italy and downward revisions to its profit forecasts."
http://www.msn.com/en-gb/money/stockdetails/fi-151.1.BT|SLA|A.LON.BT.A?symbol=BT.A&form=PMMPTA
I'm visiting a husband & wife tomorrow for their annual financial review - both retired and have good pensions so income not an issue. Usually invest the max into ISA;s
Reviewed their ISA portfolios ahead of the meeting - medium risk couple - portfolios have approx 55% equities, 40% fixed interest & 5% property (needs a little bit of re-adjusting as the growth in American equities & the closure of some property funds have move them a bit out of kilter = but I'll talk to them & see what they say)
Anyway. his has grown 21% since last feb, hers by 19%...............his lost approx 4% the year before and hers stood still, so not always a bed of roses, but I know which camp I'd rather keep my money.
An interesting question arises from your post above, and nobody is better placed than you to give an opinion on it.
How today would you invest a pension pot? Not, presumably putting it all in Premium Bonds.
I am suspicious, short term, of the current levels of world equity markets, but the fact remains that ever since I started trying to understand personal investment - 30 years ago now - there have been dire warnings which sound a lot like yours. But despite short term big falls, which we can all reel off, most people will have found that steady investment in a broad range of investment but largely in equities, has been the best choice. And I think it comes down to one reason; there is so much money sloshing around, (for better or for worse) and it has to be invested somewhere.
As it happens my personal pension pot is largely in cash since I switched platforms a few weeks before Brexit vote and of course both providers dragged their feet, and I couldn't reinvest until after the vote, and markets have of course gone up ever since, defying expectations. So I have a current personal interest in how you would answer the question you've posed. (of course, i won't treat it as professional advice :-) )
BUT premium bonds only ever go one way - down - because there is no capital growth but there is inflation. All you get is the dividend or prize, call it what you will. Let's say you purchased £1,000 of premium bonds in 1967. The equivalent value today would be £16,808. But you'd still have only £1,000; a paltry sum compared with what you could have bought with it in 1967.
Then, the current prize pot for premium bonds is 1.25% per annum and the chances of each bond "winning" something is 30,000 to one.
Meanwhile an equity will be paying a dividend (usually). On FTSE100 stocks an average in excess of 3.5% per annum. So even if the value of your stocks went down 2% each year, on average, you'd still be better off than leaving money to rot in premium bonds.
The importance of the dividend and re-investing it cannot be over-stated. In fact share price growth is a bit meh. Hargreaves Lansdown are fond (for obvious reasons) of pointing this out and calculate that the FTSE 100 has only grown by 171% over the past 25 years, but the return jumps to 561% when dividends are reinvested.
Now, as for @Dippenhall's dire warnings. I'm not so sure. (That probably means he's right!) QE is an odd one. No extra money was printed - it was all done electronically - but it's not really the right name. It's actually called The Bank of England Asset Purchase Facility. In other words, it merely swapped institutions' illiquid assets (Gilts and commercial bonds) for assets of a liquid variety, that is dosh. So, as the APF unwinds, the banks, etc will get their gilts and bonds back. It seems that is likely to be done on a drip feed basis and hopefully will not result in any shocks. I'm also of the view that although markets are high, most companies are fairly valued and will stay so until interest rates start to rise again.
It goes without saying, of course, that premium bonds are like Gilts in that it's just a way of lending money to the Govt. Premium bonds are just the Govt. ripping people off, like the lottery. There's a bit of history with the Govt. taking the piss.
In 1917 the Government issued a stock called 5% War Loan 1929 to 1947. It was to help pay for WW1 and as the title suggests, it was intended to be redeemed somewhere between 1929 and 1947. But in 1932 the Govt ran a conversion into 3.5% War Loan 1952 or after. It saved the Govt. money of course but people didn't focus on the words "or after". In fact the stock wasn't redeemed until 2015 (and then only because interest rates were so low). I suppose the moral of this story is beware a Government offering to take your savings off you. Chances are you'll get a better deal elsewhere.
Unlike printing money for the banks who then lend it to business and create economic activity, it's money that isn't producing anything. Don't forget, the idea of manipulating money supply is a relatively recent idea, embraced by Thatcher, and intended to do one thing only, control inflation up or down. QE was intended to increase inflation which in turn allows Central Banks to set appropriate interest rates to achieve equilibrium and prevent either hyperinflation or deflation. It hasn't worked, yet like the mad scientist we keep repeating the same experiment to see if it will work next time.
The solution may be to give the money direct to individuals to reduce debt and provide capital for business to invest.
As for investing for a return, no one knows where to go, there is no obvious value, and unless you set objectives for your investment you have even less idea.
It's a matter of luck going into cash to get the timing right, if you think prices are due to fall. Statistics have shown the stock market prices are always valued correctly averaged over time, what varies is the cycle over which you obtain value. For this reason I never worry about year on year performance as long as your time horizon for seeking value is over ten years, nor do I expect real returns above inflation to be any better than they have always been, around 5%.
If you get market returns over short periods in excess of 5% above inflation, assume only that they will be replaced by lower returns in future. Pension funds sell the excess returns for cash or bonds. That is "de-risking" by those who accept they are not wanting to take risk trying to beat historic market returns and are happy to achieve average market returns.
I would never pay a premium for taking risk unless the premium is likely to be rewarded, that means it has to be a performance related fee or a fee for sophisticated diversification of risk in a multi asset fund.
One of the reasons UK gilt yields are so low is an unintended consequence of another government policy - to make employers guarantee they would fund pension promises, rather than best endeavours, the position until Maxwell came on the scene. Schemes can only guarantee pension payments if they buy guaranteed revenue streams into the future. Only government gilts can do that, so pension funds demand for gilts outstrips supply and are bidding up the price of gilts (lower yields). Originally pension schemes were affordable because they ripped off leavers and could invest in equities. The lower the gilt yield the bigger is the pension fund deficit which means more cash has to be invested by the company to plug the gap. Investing the additional contributions in higher returning equities to plug the gap doesn't reduce the deficit unless it's invested in more gilts, so perpetuating a vicious circle.
Pension schemes will get back to solvency only when stock markets fall and gilt yields rise by a greater percentage. Only then will pensions be secure and company money will be invested for growth rather than wasted buying over priced government gilts.
The point is, don't wish for higher stock markets, wish for higher interest rates and higher inflation and be happy with 5% returns above inflation. A pension is a revenue stream supported by a cash pot, not just a cash pot. Living off £1m when interest rates are 5% means £1m is a good pension pot, living off £1m when interest rates are 0.25% is a crap pension pot, you need £20m for the same income. You might get better than market interest rates, but only by risking your pension pot entirely.
That's a cracking article from Martin Lewis, especially the winnings calculator.
@LargeAddick , you have been a persuasive supporter of Premium Bonds, would be interested to get your thoughts on this.
One thing to note is that since Lewis wrote his article savings account rates have gone even lower, even as inflation ticks upwards.
There's no right or wrong. You could win very little, you could win quite a lot, but on average you'll get a similar return, as a savings a/c. At least you get your stake back with the PSB lottery.
If you tied money up in a fixed term savings a/c, you should get a better risk free return.
I've always been a fan of Share ISA's (those old enough will remember PEP's back in the day) on the basis that investing regularly over the long term you'll do OK. Look at a chart of the FTSE100 for instance, over any reasonable length (say 5-7 years) it's an upward trend, blips in-between but thats why you invest regularly not all at once.
The last 12-18 months has seen my S&S Isa and Pension increase by 30%+ partly striking lucky with the timing of switching my final salary pension into my SIPP and also investing a lot of that in the US markets, one of my US funds is up over 50% in that period, helped by Brexit and the exchange rate (Thanks!).
Prague, i'd get yours back into some equities, filter it back in over the next 12-18 months. Although if you are intending to start drawing it in the next 2-3 years maybe do it over a slightly longer period and keep some back in bonds & gilts.
Just thought I'd mention that in browsing for books on Amazon I've found there's a lot of free "Kindle unlimited" ones to choose from. In fact, there are too many to download and read them all but as and when I come across a good 'un, I'll post the title on this thread. I think you have to have a Kindle and an Amazon account to be able to download them.
My first reading foray is into "investing for income".
To add my 2 cents to the conversation, I'm contemplating a strategy, once I've finished working, whereby I have enough cash set aside to keep me going for a couple of years and investing the remainder for income. The idea being the income stream replenishes the cash pot and having 2 years of cash means (hopefully) I don't worry (so much) about any short term falls in the capital value of my investing pot.
Some of my cash will definitely be in ERNIE........you have to be in it to win it!
It was easy to join using my UK address and phone number and I paid £26 to have them UPS my new card to my Canadian address as I'm not back in the UK until next month.
The Revolut account can be topped up using a bank card, i.e. Visa debit, linking the card is as easy as scanning the card using a screen inside the Revolut app. You can't spend money on the card unless you've topped it up.
I found the app wouldn't scan one a debit card I have, it's for one of these simple & free online-only accounts, it seems like each card needs to be accredited like Visa?
I was able to scan in Visa Debit cards for UK & Canadian chequing accounts and can top-up Revolut using both. However, for me there's a bit of a twist in that the top-ups need to be in either £, US$ or €.....so when I top up using my Canadian card, my Canadian bank "exchange" my Canadian currency at something like mid-market rate less 2.5%. If I top up using my UK account there's no "fee" taken, it's £ for £.
So I guess for expats, if you can top-up in one of the 3 Revolut currencies there'll be no "fees" and when you use the card for purchases or at an ATM you'll get the mid-rate Google.
My conclusion at the moment is I've not found anything better than Transferwise for getting my Canadian money over to the UK.......1.2% fee and mid-rate Google.
Never needed one myself so haven't compared prices.
I couldn't find a way to price them up and compare them to TransferWise, unless I signed up and initiated a transfer. The link on the Azimo website has an FAQ on their cost which says:-
"The exact fee will depend on where you’re sending money to and from, and by which method.
There are no hidden fees with Azimo – we’ll tell you the total cost of your transfer, including the exchange rate, before you press the ‘send’ button."
On the Web, the reviews and comments around their transfer costs seemed to indicate that TransferWise is lower cost.
So as of now I'm leaving them be - if they can't quote a price or if it's hard to find the price, it leaves me with the feeling that their deal can be beaten?
Thanks anyway, it's good to know about them and I will keep an eye on them from time to time
Bearing in mind that premium as an adjective is supposed to relate to something that is of higher than usual quality, it would probably be better if this shabby product was renamed as something like Mediocre Bonds.
Maybe keep a few bob in there?
http://business.financialpost.com/investing/global-investor/five-charts-that-hint-at-an-uneasy-optimism-running-through-this-bull-market
Just one more market view to add to your brain food really.
She hasn't won a penny in all that time.
I started buying premium bonds rather than national lottery tickets when they increased the lottery numbers from 49 to 59. The rationale being that I can at least get my stake back with premium bonds which I obviously couldn't with the lottery.
I too haven't won a penny.
Having said that
I ain't never bought one
Good idea?