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Gustave

Investing An Str Fund

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Would you be kind enough to answer the following quries?

Why C$ and not US$? Are the two not closely linked or could they/have they decoupled?

And I thought the outlook for the US$ was up, up and away, after the present bottoming out. So, why not US$?

I imagine its to do with the relative debt/financial health of each country, Canadas finances are in a relatively strong position compared to most other countries so far less chance of the currency being devalued through Quant Easing

As for the outlook being upup and away, you dont just walk away with a little slap from from the debt fuelled financial sh@tstorm that has just started, this downturn will take years to play out with lots of fake recoveries. An economic boom cant happen until the debt has been purged.

Edited by T De Lempicka

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If you mean that you believe that house prices are going to rise in nominal terms, or at least rise in value at faster rate than the interest you can receive on them, then it was probably a mistake to sell the property in the first place.

no, it means it is a mistake to store the proceeds of the property sale in GBP.

like I said: BOTH houses and GBP are going to continue to fall in value so it is a mistake to be holding EITHER of them.

2) I never said that the value of UK property and the value of GBP are linked. However, if you have sterling today and expect to spend sterling in a year or so time, exchanging it into a different asset in the intervening period exposes you to currency risk.

GBP also has currency risk.

bizarre that you should think that GBP's value is any more fixed than that of USD, EUR, YEN, CHF etc...

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I hope that wasn't a flat you liked very much <_<

You've just turned yourself into a saver. That is to say, someone our government sees fit to rob, by inflating away the value of what you have. I'd want to turn lots of those £ into real assets. Furthermore I'd look beyond our buggered shores. Companies with substantial international earnings, or funds investing in less blighted markets.

FWIW, I've been increasing my exposure to the "developing" world, primarily Asian countries, since the UK stockmarket started to heat up. They're rising too and could crash, but I expect currency movements to support their sterling value in the longer term.

As for low risk, corporate bonds are a traditional halfway-house between savings and equities. I have a small amount in bonds, and they're doing very nicely. The risk there is inflation[1], which will devalue bonds. Government bonds carry the same risk, and pay less for it.

[1] or default. But our strongest companies look like a safer bet than the government, and I'd certainly rather my money was working for something productive than shoring up the national debt.

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From what I can gather, even seasoned investors don't know how to play these markets so what chance does the amateur have?

Why "play" the markets? Investment is not the same as speculation!

I'm investing in value, and getting growth. Oh, and with it a dividend stream that beats today's savings rates from most of them.

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I hope, for your sake, the dividends are not cut

Some of them have been cut. I've made quite a big (paper) loss on one of those, which I put down to experience. But overall I've made modest gains over the past year of bear-market. Plus the dividends.

The flip side is that I'm not making such big gains as the market at large on the past 10 weeks of rise. I think that's mainly down to currency, with dollar-denominated earnings dropping like a stone. The asian stuff is making the best profits.

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Why "play" the markets? Investment is not the same as speculation!

I'm investing in value, and getting growth. Oh, and with it a dividend stream that beats today's savings rates from most of them.

I agree with your point re investment/speculation and that the word "play" was a poor choice on my part - it was misleading.

What I meant to imply was that even seasoned investors are unsure about whether to enter the equity markets, stay in cash or buy treasuries.

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Thanks to all for lots of helpful advice. As a novice/ignoramus on these matters, it's also interesting to me there are such a wide range of views...

The main things I'd take from what people have said are:

1. No one knows what's going to happen, so diversification is the name of the game.

2. The big risk (in my circumstances) is inflation.

There are a few things I'd like to ask on the back of that though:

CURRENCY RISK Seems to me (as some posters have argued) that, since I eventually want to buy an asset in sterling - a house in England - messing about with other currencies is too risky. It might make me some money, but it might lose me some too. If I was an investor/speculator that might be fine. But all I really want to do is hold onto what I've got with an eye on an eventual house purchase. I can see there might be an opportunity cost. But why would I take the risk? Am I missing something?

BONDS A couple of people recommended corporate bonds as a good investment. But doesn't their value fall if interest rates rise (which seems very likely at some point)? I know the yield rises at the same time, but I am only expecting to be in this for a year or two...

INFLATION AND INTEREST RATES As far as I can tell the real risk for me is less high inflation per se than negative real interest rates, i.e. that inflation is higher than the interest I'd get on any savings. I think this risk arises whether the nominal rate of inflation is high or low. And you could argue that's where we are now, with CPI above base rate, couldn't you? Sorry if this is a dumb question, but how do you hedge against negative real interest rates?

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1. No one knows what's going to happen, so diversification is the name of the game.

we do know one thing: central bankers are thieves and will try to steal your savings.

2. The big risk (in my circumstances) is inflation.

yes, that is their preferred method of stealing your wealth

CURRENCY RISK Seems to me (as some posters have argued) that, since I eventually want to buy an asset in sterling - a house in England - messing about with other currencies is too risky. It might make me some money, but it might lose me some too. If I was an investor/speculator that might be fine. But all I really want to do is hold onto what I've got with an eye on an eventual house purchase. I can see there might be an opportunity cost. But why would I take the risk? Am I missing something?

holding GBP has just as much currency risk as USD, EUR, YEN, CHF etc.

as I said before, the value of GBP is no more fixed than that of other (fiat) currencies.

holding any currency right now is too risky

BONDS A couple of people recommended corporate bonds as a good investment. But doesn't their value fall if interest rates rise (which seems very likely at some point)? I know the yield rises at the same time, but I am only expecting to be in this for a year or two...

gov't bonds are denominated in fiat (paper) currencies, so I wouldn't touch them with a barge-pole due to inflation concerns.

some of them claim to be 'index-linked' but in reality gov't's 'official' inflation indices never accurately reflect the true rate of inflation.

INFLATION AND INTEREST RATES As far as I can tell the real risk for me is less high inflation per se than negative real interest rates, i.e. that inflation is higher than the interest I'd get on any savings. I think this risk arises whether the nominal rate of inflation is high or low. And you could argue that's where we are now, with CPI above base rate, couldn't you? Sorry if this is a dumb question, but how do you hedge against negative real interest rates?

don't keep your money in paper currency! (or bank accounts of any kind)

edit clarity

Edited by InternationalRockSuperstar

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CURRENCY RISK Seems to me (as some posters have argued) that, since I eventually want to buy an asset in sterling - a house in England - messing about with other currencies is too risky. It might make me some money, but it might lose me some too. If I was an investor/speculator that might be fine. But all I really want to do is hold onto what I've got with an eye on an eventual house purchase. I can see there might be an opportunity cost. But why would I take the risk? Am I missing something?

No, you are not.

Unless you really know what you are doing, you can lose your shirt on currency speculating. Far better to hold the currency(s) that you need to spend. In my case, being retired, I spend a lot of time in mainland Europe and spend both EUR & GBP. If and when I decide to buy another house, it may be in France so It makes sense for me to hold both EUR & GBP rather than hold all GBP and convert it as and when required.

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Guest Daddy Bear
No, you are not.

Unless you really know what you are doing, you can lose your shirt on currency speculating. Far better to hold the currency(s) that you need to spend. In my case, being retired, I spend a lot of time in mainland Europe and spend both EUR & GBP. If and when I decide to buy another house, it may be in France so It makes sense for me to hold both EUR & GBP rather than hold all GBP and convert it as and when required.

Getting nervous yet Brucey old boy?

You will be pleased to know I completed on a house last week 32% below peak price and 2 years after I STR'd at the peak. The ideal family home. 10 year fixed at 4.99% - will be paid off in 10 years as >60% deposit put down. This HPC has been good to me.

So now am 100% OUT OF CASH - no longer sitting in Sterling in Northern Rock.

100% in Assets - I have made my dash to assets.

I am sure you will be fine though - good luck.

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Seems like a risky business STRing now, those wanting to make money out of the HPI and subsequent crash needed to STR somewhere between 06-08.

I don't know if it's too late, but seeing as you're happy with the price you paid for your house (and I'm assuming have no problems with mortage repayments) I'd have thought that the least risky option would be to just hold on to your house and stay out of property speculation.

Edited by bb7t6

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Ok... here's my view on this.

Stocks, globally, have enjoyed a good rally over the last 2 or 3 months, and I have seen some that I'm watching double or triple! Sure these stocks were hugely beaten-down around March, but who's to say we couldn't see those lows again. For this reason I'd like to see some seroius falls before I buy back in, and in the meantime have the money on the sidelines waiting. Sterling is doing very well against USD and JPY, to a lesser extent against the euro, although it does look as if some resistance is about to be broken. The question is, will there will another stock market crash before Sterling turns back down. At the moment the buying power is quite relatively high for foreign stocks.

I have read many articles about Japan being very cheap at the moment, although like most other countries, it has had a big rally lately. I've been monitoring the buying power of the pound against the yen (good at the moment, and getting better all the time) and the general increase in the Japan indexes. When Japan corrects, assuming GBP/JPY doesn't also correct, it will be a great time to invest in some Japan funds. Maybe a small-cap and a large-cap fund to spread the risk.

Likewise on the Euro side of things, if we see 1.25 to the pound, and a downward correction in european markets, I will be looking for a couple of good european stocks.

When assessing the strength of individual stocks, you should carry out a lot of analysis: Things to check are:

Dividend Yield: Should be an amount that is worth having, and comparable or better to what you would get in a bank.

Dividend cover: Should be 2 or more

Debt to equity ratio: The lower the better. 0% is ideal

Price to book ratio: Again, lower the better. 1 means that the market cap is equal to the total assets.

Price to earnings: If it's lower than stocks in the same sector, then it is a cheaper bet.

Current assets/short term liabilities: (liquidity check) A value lower than 1 and you shoud avoid.

Altman Z score: A ratio that gives you the chances of a company going bust. The higher the better. Above 3 is considered safe. It's very tricky to calculate, but here's a calculator that can help you - http://www.creditguru.com/CalcAltZ.shtml

All of the information above can be found against UK stocks, at least, on digitallook.com

Personally, I think spreading your money across 2 or 3 uk bank accounts wouldn't be a bad idea for the next 6 months, whist we see what's going to happen with stocks. Maybe some of it in gold as people have suggested. Then if there are some nasty surprises in store for the stock market I would drip-feed money into good stocks and funds on the way down. Take say, 50% of your total fund and invest 20% at critical low-points on the way down. If a stock is fundementally good, but some 'bad news' hits, it can be a very good opportunity to buy.

Anyway. I'm not an expert by any means, but I hope this helps.

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we do know one thing: central bankers are thieves and will try to steal your savings.

yes, that is their preferred method of stealing your wealth

holding GBP has just as much currency risk as USD, EUR, YEN, CHF etc.

as I said before, the value of GBP is no more fixed than that of other (fiat) currencies.

holding any currency right now is too risky

gov't bonds are denominated in fiat (paper) currencies, so I wouldn't touch them with a barge-pole due to inflation concerns.

some of them claim to be 'index-linked' but in reality gov't's 'official' inflation indices never accurately reflect the true rate of inflation.

don't keep your money in paper currency! (or bank accounts of any kind)edit clarity

So at the end of all of that what do bears of little brain like myself decide?

From a little brain point of view the answer seems to be , forget the STR fund and buy a property at least you end up with something when ALL ELSE FAILS. Which is what Daddy Bear is saying on his :

Black Monday Coming HPC thread

So is the advice to people coming to HPC today for the first time, don't sell because you could lose all your money because there isn't really anywhere safe to put it? And to those with a STR fund, BUY NOW before you lose the lot?

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No, you are not.

Unless you really know what you are doing, you can lose your shirt on currency speculating. Far better to hold the currency(s) that you need to spend. In my case, being retired, I spend a lot of time in mainland Europe and spend both EUR & GBP. If and when I decide to buy another house, it may be in France so It makes sense for me to hold both EUR & GBP rather than hold all GBP and convert it as and when required.

nope. for example:

on 01/01/2008 John and Mark both have £100k.

John puts his £100k in the bank at 5% annual interest.

Mark uses his £100k to buy physical gold.

at the end of 2008:

John has £105k in the bank.

Mark has £144k worth of gold.

who is now better able to afford to buy a house? who is better able to purchase food for their family? who is better able to buy REAL STUFF?

100% in Assets - I have made my dash to assets.

no you haven't.

equity in a property is not an (hard) asset.

the underlying asset is owned by the Crown.

Seems like a risky business STRing now, those wanting to make money out of the HPI and subsequent crash needed to STR somewhere between 06-08.

nah, UK real estate is still massively over-valued.

Sterling is doing very well against USD and JPY

unfortunately it's doing p1ss poor against stuff I actually buy, like food and petrol :(

So is the advice to people coming to HPC today for the first time, don't sell because you could lose all your money because there isn't really anywhere safe to put it? And to those with a STR fund, BUY NOW before you lose the lot?

if you buy a propety now, it will only continue to fall in value and then the gov't will probably tax the sh1t out of it (they're getting desperate now).

basically, you'd be buying a rapidly-depreciating, immobile, illiquid, tax-liabilty.

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Why "play" the markets? Investment is not the same as speculation!

I'm investing in value, and getting growth. Oh, and with it a dividend stream that beats today's savings rates from most of them.

Every serious long-term investor knows you should be ploughing those dividend payments back. Are you?

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Every serious long-term investor knows you should be ploughing those dividend payments back. Are you?

:lol: and every sensible investor knows that you should now be taking profit off the table.

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3 minutes ago, pmgdawau said:

If this was updated for today's mad world, what would the recommendation be for a £200k STR fund, looking to buy in 5 years ?

Send it to me via Western Union, I’ll guarantee 10% pa return. No withdrawals during the term.

*phones Bentley dealer*

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24 minutes ago, pmgdawau said:

If this was updated for today's mad world, what would the recommendation be for a £200k STR fund, looking to buy in 5 years ?

Don't sell to rent, you're trying to time the market and that's nigh on impossible. Come to think of it, should this place actually be called housingmarkettiming.co.uk

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On Sunday, May 31, 2009 at 1:13 AM, porca misèria said:

I hope that wasn't a flat you liked very much <_<

You've just turned yourself into a saver. That is to say, someone our government sees fit to rob, by inflating away the value of what you have. I'd want to turn lots of those £ into real assets. Furthermore I'd look beyond our buggered shores. Companies with substantial international earnings, or funds investing in less blighted markets.

FWIW, I've been increasing my exposure to the "developing" world, primarily Asian countries, since the UK stockmarket started to heat up. They're rising too and could crash, but I expect currency movements to support their sterling value in the longer term.

As for low risk, corporate bonds are a traditional halfway-house between savings and equities. I have a small amount in bonds, and they're doing very nicely. The risk there is inflation[1], which will devalue bonds. Government bonds carry the same risk, and pay less for it.

[1] or default. But our strongest companies look like a safer bet than the government, and I'd certainly rather my money was working for something productive than shoring up the national debt.

Markets imo have already priced in currencies and stocks. The pound has already tanked. International stocks are far more highly priced than Domestics unless you are prepared to take a chance on the Developing World and a dodgy legal system.

UK stocks are the dogs of the developed world with single price to earnings in some cases and yields around 6%. Sentiment is rock bottom.As a contrarian I quite like that. (Not referring to the multi-nationals that have driven the FTSE 100 to a record on a pound that has been trashed already)

Edited by crashmonitor

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9 minutes ago, crashmonitor said:

Markets imo have already priced in currencies and stocks. The pound has already tanked. International stocks are far more highly priced than Domestics unless you are prepared to take a chance on the Developing World and a dodgy legal system.

UK stocks are the dogs of the developed world with single price to earnings in some cases and yields around 6%. Sentiment is rock bottom.As a contrarian I quite like that. (Not referring to the multi-nationals that have driven the FTSE 100 to a record on a pound that has been trashed already)

I agree on that. (The dogs of the FTSE). I am timing my entrance - though this is impossible to get "right" I would be ok with not getting it completely ******ing wrong. Still, I am talking of money I will not "need" for at least 20 years. 

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