Investing: Where have all the safe havens gone?

7th September 2011

Inflation

If it's the eroding effects of inflation you are seeking haven from, then – bad news –  NS&I has just withdrawn its latest issue of fixed Interest and index-linked savings certificates.

The cerfiticates went on sale in May and have, not surprisingly, been very popular.

However there's only so much money the government-backed savings provider can offer to investors at such extremely preferential rates of interest.

Jane Platt, chief executive of NS&I, said there had been nearly 500,000 sales of the certificates.

"The volume of sales over the past few months is such that our forecasts show we were at risk of exceeding the top end of the Net Financing range, so we needed to take action to reduce sales."

NS&I's website and call centres stopped taking new sales of savings certificates at the close of business on 6 September 2011. Postal applications received by 7 September 2011 will be honoured, but all postal applications received after midnight tonight will be returned to the customer.

Dr Ros Altmann, director-general of over 50s group Saga, pointed out that although the fixed rate bonds were not market leaders, the RPI inflation -linked bonds were unbeatable. 

She said: "They were the only way that savers could protect their money against the ravages of inflation. 

With RPI running at 5% and expected to rise higher than this in coming months, there will be many savers who will suffer significant falls in their purchasing power – especially those who are nearing or already in retirement and relying on their savings.

So what should investors do. There's not a lot you can do to hedge yourself against inflation, instead look at other ways of offsetting savings, such as using your tax-free savings allowance via an ISA.

When it comes to equity investing, and you are not approaching retirement you might want to consider inflation-proofing your portfolio by by taking a risk.

Market turmoil

Inflation and market turmoil are not mutually exclusive, i.e you can have one without the other. When stock markets everywhere are falling commodities are a traditional route for investors looking for less esoteric investments. Gold is one as are diamonds and even platinum.

When it comes to equities – if you are brave enough – adopting a defensive strategy could now involve investing in emerging markets. Forget traditional defensive stocks such as Shell, Glaxo emerging market bonds as reported in the Independent

According to the Indy, "the once highly indebted emerging markets have less than 40 per cent of government debt as a percentage of gross domestic product, according to the International Monetary Fund.

"In contrast, this figure is above 90 per cent for developed G20 countries. Nevertheless, the returns for investors in emerging market government debt are surprisingly high.

"Investors can get yields towards the 6.5 to 7.5 per cent a year range on emerging market debt funds," says Patrick Connolly, a financial planner at AWD Chase de Vere. "Emerging market governments are in a financially stronger position than Western governments and they do not have the same levels of debt as developed markets."

Another haven remains property. Although be careful which division of the asset class you go for, as trade magazine Investment Adviser reported.

According to IA "multi-asset managers are cautiously re-entering the UK property market, focussing principally on investing in prime areas such as London and the South East.

Max King, head of global asset allocation at Investec Asset Management, said commercial property has seen a rise in returns in the past six months, while demand for residential property continues to exceed supply in London and the surrounding area.

Mr King said: "Investing in property does look positive. Commercial prices have come back a bit in the last month so it is a good opportunity to add to UK property holdings, but the hotspot is London."

The manager tipped retail parks, and said London offices were currently attractively priced.

"Looking for good deals in London is not a bad idea at the moment," he said.

If investing direct into Asian equities is still too how about investing in companies and or asset  that benefit from continued growth such as fine wines and fashion.

If that has inspired you you could still buy into the success of the world's safest currency the Swiss Franc.

Although as reported in The Guardian and by Mindful Money's economist blogger Shaun Richards the Siwss National Bank's decision to peg the SF to the Euro could have removed yet one more safe haven for investors.

 

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10 thoughts on “Investing: Where have all the safe havens gone?”

  1. Drf says:

    “I am happy to confirm that I do not possess any specialist financial qualifications.”  Just like normal then? Amateurs in charge. None of these types of people have any appropriate formal qualifications for the job any more.  Being Common Purpose brainwash “trained” is the only attribute necessary now it seems !

    1. James says:

      Of course, the journalists are in exactly the same position here as the politicians, which may well be why they don’t expose them as much as they should..

    2. Anonymous says:

      Hi Drf

      His conclusion is that “I am unable to uphold your complaint” but failed to point out until I asked that his ability so to do was based on this.

      “”I am happy to confirm that I do not possess any specialist financial qualifications.” 

      More accurate would have been I have no qualification or ability to decide one way or another…

  2. James says:

    Shaun,
    Excellent piece as always.kafka could no longer keep up with the reality-denying rhetoric.
    Perhaps the politicians are right in thinking that you can fool all of the people all of the time, judging by these Spanish antics. The real trouble is that the policy debate is taken in a complete vacuum, because
    1. No-one understands the mass of figures coming out of the various EU bodies. No-one really challenges the obvious absurdity in the rigid deficit plans mandtaed from the centre. No-one really asks whether the fines will ever be imposed. Noone really understands the bail out bodies (EFSF etc) or the role of the IMF.
    2. There is complete mis-reporting by the BBC in the UK. Just go into any street and ask about the UK position and you will get a 95% response that the cuts are hurting (there are no cuts to speak of) but that at least the debt is coming down (it isn’t). When I mention to friends that government debt is still going up at the rate of £400 million a day, they think that I am mad;
    3. QE and the huge ECB LTRO programme appear to be free ways of deferring a crisis, “giving us time to sort it out”.
    As a result of all of this, which boils down to politicians doing the easy option, unchallenged by the press, there is simply no addressing of the real competitive problesm etc of the EU

    1. Anonymous says:

      Hi James

      The state of play is troubling and if I may move beyond my usual economics beat I am concerned about changes to the rules concerning the press. There is a danger that correct moves to try to stop another “Hackgate” will have a few anti-libertarian additions that further restrict the freedom of the press. In the small print that sort of thing.

  3. JW says:

    Hi Shaun
    Courtesy of Reuters and ZH the EZ forecast for Greece to receive its money.
    Includes unbelievable turnaround of GDP in 12 months together with a real reduction in private sector earning of over 20% per head.
    Yes, I bet Portugal and Spain are just hoping for some of this.

    1. Anonymous says:

      Hi JW

      Thanks for the link below. Some of it is rather familiar as to get their bailouts to show any improvement then next year always has zero growth and the year after 2.5% or so… Otherwise the debt/GDP comparisons look dreadful…

      Actually if I recall correctly once or twice they have assumed economic growth the next year whereas in 2011 and 12 it was heavily negative.

      I would also be interested in their definition of net external liabilities. The drop from 116% of GDP last year to 88% this ignores the fact that Greece has largely exchanged one set of  owners for its debt with another. Indeed to the extent that Greeks held their own debt the external liabilities have in fact just got worse have they not?

      1. JW says:

         Hi Shaun
        Yes, the total has gone up by at least €35bn, and the overwhelming majority is now external, Greece is now ‘owned’ by the EZ. They are just ‘spreadsheet numbers’ designed to get to the headline numbers they want, its so obvious. Unless the Greek population have had mass frontal lobotomies, it seems highly unlikely that this situation will exist much longer than the next election. However turkeys have been known to vote for Xmas.
        Somehow I doubt the Spanish will sleep-walk into quite the same situation, and I think Portugese English law bondholders will make that unlikely there either. Eventually time will catch up with those cans.

  4. Anonymous says:

    Hi Shaun,

    You ask why the eurozone wants to repeat the same mistakes. Politically each national leader has a veto, but the Greek politicians were given a choice comply or no bail out money. (and personally if there is no bail out then there is no money to pay salaries)

    The ECB people have an obvious vested interest to preserve the status quo, if the euro disintegrates they will be jobless. The EC & EP do not want the myth of ever closer integration to be challenged. Again there is a vested interest.

    The 17 national leaders are taking positions to gain domestic political advantage but collectively they are pulling in different directions. This results in leadership by a dysfunctional committee where a single member can veto sensible options.

    Merkel does not have the power to enforce austerity and Spain has vetoed this. Germany could stop funding Spain, threaten a DM referendum and/or unilaterally withdraw from currency union. the longer Germany leaves this decision, the more expensive it gets.

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