Tuesday 18 May 2010

Is it time to get out of cash?

For a long time - years - I have counselled caution to clients, and thought cash was not a bad place to be. That has been correct for the last decade or so. If you had hopped in and out of the market at just the right times, you might have done very well, but equally you could have lost very heavily. The FTSE still hasn't got near to its peak of 1999, and when you consider inflation, in real terms we are still far below.

But we may be moving on to a new phase. Governments in the USA, the UK and now the European Union have poured quite staggering amounts of cash into the banking systems to prevent their collapse. Some commentators now think that we are heading for an inflationary period that will devalue savers' money (and interest rates on deposits are not matching the official inflation figures).

There is an argument for investing now, not to make a genuine gain, but because over time stocks and shares may not lose as much in real terms as cash at the bank. This is the view of Dr Marc Faber, for example (see excerpts from a recent interview here), even though he believes that the monetary system will eventually collapse (and presumably be replaced by a new currency).

There are other ways to protect against inflation, notably National Savings Index-Linked Certificates, which are backed by the government and will return growth in line with RPI plus 1% per annum or so. We can argue about how exactly inflation is measured - and that is relevant - but their definition of inflation will have to be fairly reasonable, we hope.

More speculative investors may be eyeing gold (which has already quadrupled in price since 2000), silver, oil, agricultural land etc - but commodities are risky and there are already funds investing in these areas with the advantage of borrowing very cheap money, thanks to the state-supported banks.

If you would like personal advice, do please get in touch.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.


AntiCitizenOne said...

I thought the same, perhaps High-Yielding shares?

Sackerson said...

I guess, but it also depends on how much debt-fuelled speculation there may be in the companies concerned. Unfortunately I'm not a stockbroker, but other things being equal it seems to make sense (to the investor) to extract money as fast as possible, to shorten the period within which you get your original capital back.

Any suggestions?

James Higham said...

I would appreciate your comment on the "gold" post, Sackers.