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callaght

Cash question

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For years now I've been saving and saving and saving for a house - all cash.

 

Now all I see is the plummeting pound!

 

Looking for advice, do I hold on and keep saving in cash until I can buy my house or what? What is the alternative? :( I'm so confused

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Welcome to the central bank created hell - you're trying to save, they want you to spend, and all the while they're driving up the price of the thing you're saving for, whilst ensuring that there is no positive real yield in any "safe" investment.

There are no easy answers to this, by design. Except the one that the BoE would like, which is to go out and spunk your cash on consumer shite, and then take out a massive mortgage to buy an overpriced shit hole to put all your newly acquired consumer shite in.

Alternatively, you can protect/hedge yourself as best you can, and hunker down safe in the knowledge that you might lose some or all of it, but at least you're not up to your testicles in debt, and doing the bidding at your own expense of people who are quite frankly, insane. If you start looking at your cash as opportunity capital rather than an ever receding chance of buying a house, interesting things start to happen.

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3 minutes ago, callaght said:

Yeah house prices keep rising while I'm saving and definitely don't want to use it on a car or tv and now this. A falling pound!

Make no mistake that it's entirely deliberate. They won't intervene to stop this - Brexit has just given them the excuse they needed to let the £ go.

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All things considered, a plunging pound supports house prices UNLESS the BoE is forced at some point to raise interest rates to support the currency.

I think this is unlikely to happen as we have seen the pound go lower in the past and they were quite happy to let inflation run at rates well above target for years (over 4% for a few months, even) with no action other than a letter written to the chancellor every month.

 

I would say it would take inflation at rates north of 5% to induce even the tiniest of rate rises and it will take at least a year before any of the current devaluation really works itself into the annual figures based on how long it's taken for price rises to happen in the past.  In short, this current devaluation isn't going to stimulate any IR rises.

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18 minutes ago, callaght said:

Gold, shares, bonds, where do I go?  Or do I stay in cash?

I think that depends on two things:

  • Whether you expect monetary policy to remain loose or to be tightened at some stage
  • Whether you're looking for yield or to protect what you have

Nobody can answer the first one definitively, so it comes down to your interpretation and expectations. Basically you're sitting on cash that you earned through some sort of productive activity, and you're wondering whether to put it into assets which have all been driven up by money that the central banks simply printed into existence. So if you do that and global monetary policy begins to tighten, you're going to take a hit. If you don't do that and global monetary policy continues as it is or loosens, then you're going to take a hit. If you're looking for yield, then those risks rise in line with the additional risk you need to take to find it.

My personal opinion is that if you're looking to buy a house in the UK, then your best bet is to remain primarily in Sterling denominated assets, and to protect yourself against inflation as best you can, perhaps through a small % in PMs or a larger % some sort of index linked investment. That said, had I listened to a poster called Particle Man about 4 years ago, and piled into Swiss Francs, I'd be very wealthy now.

That's the reality - the CBs have turned everything into a casino. All you can do is make educated guesses and do the best you can.

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They are doing everything they can to make cash useless. Even now after many years saving for a house, your cash is worth little. Now a foreigner can get a great deal on the £ and a debtor can get a great mortgage rate, they are both competing with you for the houses and pushing up the price. You can buy even less abroad with your £ now that it sank. You and others have been taught a lesson that holding cash is not worthwhile. Everybody in the UK is being taught that lesson. Cash is pointless and to spend it and to buy property, or stocks, or anything. This is actually part of the hyperinflationary process, see if you recognize any of this:

http://howfiatdies.blogspot.co.uk/2015/06/stages-of-hyperinflation.html

My advice is to stop making the same mistake of holding cash. We are now on something like the 6th or 7th injection of QE, there is no stopping it. You either believe this or you don't. If you believe it can be stopped, great... hold cash. But 100% cash is completely nuts.

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As adamLancs says, you're finding out that the central banks have made holding cash a terrible play. If you are the sort who holds cash while looking for business opportunities or has a crystal ball to time markets, then you're doing well. If on the other hand you're like me with no crystal ball then holding all cash is a bad move. Try to answer the question, what actions have the government taken about inflation since 2008? What actions did they take when GBP dropped 30% in that period? What noises are they making now that indicates they will raise rates? My view is, none. They won't be raising rates. The game is rigged. Play it accordingly.

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5-10% of your cash should be in precious metals (preferably gold).

Sovereigns are CGT free.

Edited by Errol

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First of all, don't panic. Currencies fluctuate. Not that long ago the dollar was in the toilet - and the pound was very strong against it. 

For me, the answer lies on how much cash, when and where you are looking to buy. 

If house prices in your area are stagnant/decreasing/not affected by foreign investment then cash is perfectly fine.  Bear in mind that cash is also highly liquid - if you're actively looking to buy right now, then you likely don't want to tie your cash up. 

The situation changes considerably if you are looking to buy overseas in ten years time in an area where prices are robust (and if you are willing to take risks beyond inflationary ones). 

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OP,  nobody can guarantee what can happen in the future but everyone can guess. Those who have called it right  so far are probably not on this forum.

I would do what you enjoy the most. If you enjoy waiting then wait. If you are tired of renting, need a house to live for you and family then buy.

£ may go down further or it may bounce back. If you want to buy abroad and are holding off for an increase in interest rate then see which way your destination currency is going. If they are lowering IRs then it may make sense to weather out £ fall. but again noone can guarantee.

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I'm in no position to give sensible advise. What I would say though is that my £50k of cash savings are giving me a return of about £75 a month. My terribly performing Lloyds shares are down about 25% post-Brexit but they are still paying a return of roughly 4x what the cash is. My non-Lloyds shares are yeilding slightly less but are up by 10-50% so I've protected some capital.

Overall in my first year of share trading I'm slightly up overall but putting 50% into the British banking industry was a mistake!

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2 minutes ago, Timak said:

I'm in no position to give sensible advise. What I would say though is that my £50k of cash savings are giving me a return of about £75 a month. My terribly performing Lloyds shares are down about 25% post-Brexit but they are still paying a return of roughly 4x what the cash is. My non-Lloyds shares are yeilding slightly less but are up by 10-50% so I've protected some capital.

Overall in my first year of share trading I'm slightly up overall but putting 50% into the British banking industry was a mistake!

I have a chunk of my savings in Gold (holding up well) and Swiss Francs (outperforming) but my various sterling savings accounts are being closed and transferred into premium bonds.  Yes, still Sterling but negligible counter party risk (well, compared to a bank) and with a small chance of actually winning a large amount of cash or some small tax-free sums.

 

Worst case is that I 'lose' the less than 1% or so of post-tax interest that I'd earn from a savings account.  Not a tricky decision to make.  Still, we appear to live in an age where capital formation no longer applies and banks don't require funding from savers so I doubt the bank will miss me either.

 

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1 hour ago, Sour Mash said:

All things considered, a plunging pound supports house prices UNLESS the BoE is forced at some point to raise interest rates to support the currency.

I think this is unlikely to happen as we have seen the pound go lower in the past and they were quite happy to let inflation run at rates well above target for years (over 4% for a few months, even) with no action other than a letter written to the chancellor every month.

 

I would say it would take inflation at rates north of 5% to induce even the tiniest of rate rises and it will take at least a year before any of the current devaluation really works itself into the annual figures based on how long it's taken for price rises to happen in the past.  In short, this current devaluation isn't going to stimulate any IR rises.

 No on the contrary the falling £  does NOT support prices but acts to reduce them even in nominal terms.. Lots of reasons

a) foreign investors who cannot live in UK will not buy when £ falling.otherwise their investment goes down.  As for the EA lie that they are cheaper to foreigners so what rents are in £ yields are the same. Again they cannot live in the UK themselves. So foreign buyers PUT OFF  - less demand

b  many of the millions of E Europeans will think that with wages eroded and saving eroded further it is a good time to go back; the pull of expats to come home is v strong (I was one). Less demand for renting  and buying

c) increasing inflation  means less disposable income for rent/mortgage. Reduces demand pressure on falls

Merv also said yesterday a falling £ would translate to lower prices 

 

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13 minutes ago, Gribble said:

 No on the contrary the falling £  does NOT support prices but acts to reduce them even in nominal terms.. Lots of reasons

a) foreign investors who cannot live in UK will not buy when £ falling.otherwise their investment goes down.  As for the EA lie that they are cheaper to foreigners so what rents are in £ yields are the same. Again they cannot live in the UK themselves. So foreign buyers PUT OFF  - less demand

b  many of the millions of E Europeans will think that with wages eroded and saving eroded further it is a good time to go back; the pull of expats to come home is v strong (I was one). Less demand for renting  and buying

c) increasing inflation  means less disposable income for rent/mortgage. Reduces demand pressure on falls

Merv also said yesterday a falling £ would translate to lower prices 

 

It's quite simple - a falling currency supports assets priced in that currency.  Why do you think the FTSE has gone up as the pound has gone down?

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10 minutes ago, callaght said:

Ok, going to sit on cash because I need to buy in next 6 months

 

If I were you' I'd put them in premium bonds then.  Loss of interest over six months is going to be negligible and they are safe if the banking system starts to wobble.

 

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A financial adviser would tell you to diversify. If you're lazy, you can just stick some of you money in a low fee fund (do a search for uk robo-advisers). I would also stick perhaps 5% of your money in gold. But since you plan to buy within the next 6 months, I would keep most of your money in high rate savings accounts (check moneysavingsexpert) and/or premium bonds.

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All the mainstream advice is the pound is headed for parity with the euro.  So they are saying there will be further devaluation.

But what they are doing is pulling in the suckers, and it will go the other way once they have pulled enough in.  This is how they make money.

I'm about 51% sure that what we are seeing now is an organised attack on the pound.  Economic warfare in effect.  I think it will be only temporary and the pound will go back up.  More headlines/social media on Deutsche Bank might help.

Disclaimer:  this does not constitute advice.  I am a simple conspiracy theorist only.

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No point thinking 'I wish had bought Swiss Francs or bought a house in 1997 etc etc' just be thankful for what you have got and the excellent opportunity you have ahead of you with no debt. A recent study revealed something like 16 million people in UK have less than £100 in savings so you are doing ok. Might not feel like it but you are. 

 

 

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