1) Plugging along
Given current economic uncertainties and the events related to the global financial crisis (GFC) many investors have been scared to the sidelines waiting and watching for convincing signs of a long-term recovery before venturing back into the markets. With ongoing eurozone dramas and U.S. debt woes (USD$14 trillion and counting) they could be waiting a while.
The Motley Fool's Robert Brokamp, in a contributing blog for getrichslowly.com looks at the impact of investor hesitation and reservation in this piece. Brokamp draws on some interesting data from a survey published by Fidelity Investments which is telling. Here's an excerpt:
To take a slightly longer-term look at sticking with an investment, a recent report from Fidelity Investments illustrates the value of summoning courage in the face of a downturn. The company analyzed the returns of investors with Fidelity retirement accounts from the market decline of 2008 to 2009 through June 2011 and found the following:
- Participants who changed their equity allocations to zero between Oct. 1, 2008, and March 31, 2009, and never jumped back into the market saw their accounts grow a measly 2%.
- Investors who sold all their stocks, but got back into the market at any point before June 2011, enjoyed a 25% larger account balance.
- Those who stuck with their asset allocations saw their account balances skyrocket 50%.
The analysis also compared investors who stopped contributing to their 401(k)s with those who kept on saving. The account balances of the former grew 26%, while those of the latter ballooned 64%.
2) Safe havens for cash
Along those lines, wary investors parked in money markets took it hard in 2011 with low interest rates and inflation cutting deep into returns. According to the U.S. Federal Deposit Insurance Corporation money market rates in the U.S. languished at the start of 2011 at an average of 0.23 per cent and sunk to a depressingly low rate of 0.15 per cent by Christmas. Factoring in inflation, U.S. depositors saw their purchasing power slide around 3 per cent. The picture is meant to brighten in 2012 but many investors will undoubtedly be casting about for more promising returns to make up for the losses.
Here's a cheery pictorial slideshow of five safe havens for cash outside of money markets and treasuries. The Swiss Franc (up 13% YTD versus the USD) is one of them.
Further to that, here's a brief explainer on U.S. money markets in 2011, also from Forbes Money.
According to the FDIC, money market rates in the U.S. began 2011 at an average of 0.23 percent. At the time, that seemed like an extremely low level, but money market rates continued to slip lower throughout the year, as pessimism about the economy deepened. By late December, money market accounts were offering an average interest rate of just 0.15 percent.
This continued slippage in money market rates would have been bad enough, but the damage was even more severe in the context of rising inflation during 2011.
Going into 2011, year-over-year inflation was just 1.5 percent, according to the Bureau of Labor Statistics. In fact, one of the saving graces of the low interest rate environment was that inflation had been moderate since the beginning of the Great Recession: 0.1 percent in 2008, 2.7 percent in 2009, and 1.5 percent in 2010. All of that changed in 2011, and quickly.
Inflation accelerated sharply in the first part of 2011, and by mid-year the year-over-year inflation rate was 3.6 percent. By the end of September, it had reached 3.9 percent. With money market rates continuing to slip towards zero, this meant that depositors were losing the better part of 4 percent a year in purchasing power.
3) Emerging markets
Charles Sizemore, a contributing writer for Forbes Money writing from Peru, believes emerging markets are poised to shine in 2012 after a lacklustre 2011. That's because middle class consumers in emerging markets aren't saddled with as much debt as their U.S. and European counterparts and they're most likely to be in buying mode relative to their counterparts in the developed world. It's all part and parcel of a major reorientation of the world economy, he says.
In 2012, I see a major reorientation of the world economy. The reorientation has actually been underway for years, but it should noticeably accelerate in 2012 and the years that follow due to Europe’s crisis.
The “emerging market” growth model of the last 60 years has been pretty cut and dry—produce as cheaply as possible and export to the United States and Europe. This strategy was great, so long as the Americans and Europeans were buying. But with American households still in the process of deleveraging and with Europe in the early stages of what will most likely become a Japanese-style slow-motion depression, it looks less and less viable as a model for growth.
2012 will be the year of the Emerging Market Consumer. With demand from the developed world tepid at best, trade between emerging markets themselves will accelerate, with an emphasis on the new middle and leisured classes.
By and large, emerging market consumers, companies and governments are starting with low levels of debt; there is no “debt overhang” and no need for the pain of austerity and deleveraging the developed world is suffering. In other words, most emerging-market economies still have a ways to run.
Investors wanting to profit from these developments can go about it one of two ways. You can buy shares of emerging-market companies that sell primarily to the domestic market using an ETF like ECON (or any of its holdings), or you can buy shares of Western firms like Telefonica that get a large percentage of their revenues from emerging markets.
4) Good things come to those who ask
It's true, you never know unless you ask but fear holds most of us back from ever uttering a word. When it comes to saving money, that fear has a price.
Here's financiallypoor.com writing about the financial gains to be had for those who ask.
5) Forty ways to be frugal
"Mind the pennies and the pounds will look after themselves." It's a sound saving strategy but increasingly a tricky one to achieve with the rising cost of living and consumer pressures galore. Also, if those savings aren't immediately channelled into a hand-offs investment they're likely to be squandered. Forbes Money itemises 40 ways to be frugal across various realms of spending.
All good stuff, however I tend to think that savings is more effective when it comes from the source. ie. having a chunk taken from pay and put right into savings forcing an adjustment instead of making it optional. One of my financial resolutions this year is to double my saving rate. My strategy is to cut spending but also increase my income and somehow stay sane. I like a good challenge and suspect I need a good flatmate - again. Sigh.
36 Comments
I don't save, generally. I borrow, and make the repayment terms as high as I possibly can, it's enforced discipline. But I'm too stingy to take a holiday or anything, and have an old car, and an old TV. I borrow to buy things that make me money, and justify the lower standard of living as deffered enjoyment. I have been lucky though, because I have been able to borrow from friends and family, and they don't require all the paperwork that banks do, which helped me get started.
As I've stated earlier I owned a smaller forest block - 1200 high pruned and thinned. The land was very steep and I believe the cost of recovery of those trees to be greater than their value, although that was not the reason I eventually sold.
Is anyone asking how trees planted today can be harvested and transported in 35 years when oil stocks are severely depleted?
I know of a case a few years ago where a large stand of pines was harvested and transported to town and the owner got a bill - ie the whole exercise was a negative return.
Amanda - yes I do.
For a start, OMG is 'valuing' things in $ terms. I've commented long and hard about that being a nonsense now. Having the actual timber, is having real wealth. Having a pile of pieces of paper with numbers on, is not.
He assumes the logs - note the unprocessed nature of the resource - need to be taken somewhere, presumably in the direction of 'distant'. That global 'get anything from anywhere, instantly' regime is clearly going to be increasingly compromised as fossil fuels dwindle. The logs are more likely to be used locally, so no transport cost.
http://www.philly.com/philly/blogs/greenliving/New-for-locavores-Jersey-Grown-Wood.html
If you break timber down, you soon get to the point where you can carry the planks by hand, and all that can be done on site. I do this with a chainsaw mill, and with a portable sawmill. Both are home-built. Both are so work-efficient (I am good on the end of an M-tooth handsaw too) that I would make fuel for them (ethanol or biogas are my on-site options) to keep them in operation.
Our trees (4000 eucs and 3000 macro's, rotationally cut over 40 years is 175 trees/year) could easily be sold to willing folk within a 5k radius. If they weren't also planted to absorb carbon, that is......
I'm about to turn some of our thinnings (macrocarpa) into a log cabin, not 50 metres from where they grew. Looking forward to settin' down on the front porch, watchin' the sun go down over the 'Peaks. What's that 'worth'? Y'all come back now, y'hear!
For a start, OMG is 'valuing' things in $ terms
I responded to a question.
What about forestry for an investment.
Pretty clear wasn't it that I think it's a poor investment. The block I sold was bought with the express purpose of living there, but our circumstances unfortunately changed.
Carbon trading is dying in a ditch and those who take credits for their forest plantings have, imo, left themselves wide open to an uncomfortable future liability. As a lifestyler if you are elderly or infirm once your plantings are harvestable, for whatever reasons, the trees are worth diddly squat. They fall as they age and rot - oh dear co2 back in the air!
If you want to plant a tree every time you fart or open a can of coke, that's your business.
Fair enough, you were responding to what sounded like a tout.
In the times ahead, 'having' something, will be the best investment of all.
As I've said before, we planted out trees as out contribution to sustainability - a legacy for our kids. Both species happily live a very long time, and are still adding more biomass in the (say) year 60, than they did in year one.
I don't expect to see our treesw 'harvested', and as I pointed out, it'll be rotationally anyway.
I've also mentioned we opted out of carbon trading - the object is to help the physical planet physically - trading is a misguided attempt to address a physical problem using an artificial construct. Given that the construct is coming apart even as we watch, why trust it?
Sensible of you to keep away from carbon credits, my friends are all avoiding it too. Once you are on "their books" they can control you. All the best with your forestry, I certainly enjoyed our block and was sorry to leave it - very reluctant in fact, although I did realise that, fit as I am it was a major effort to get to the bottom of our valley which was about 800 feet down.
Buy a small block, you can own yourself. Thinking long term, worst case scenario you have some land and a lot of firewood. Whats the worst case if you hand your money over to someone else? I like it, wood is going to be the new oil imo, and I have seen some scary steep hills logged. Even better if you can get land that coulpd potentially have other uses.
Buy a small block, you can own yourself.
Yes, that's what I've already organised. I've seen a number of people though who have built houses in forest blocks where the trees tower over the building, can potentially fall with devastating consequences and are horribly exposed to a potential fire. IMO no building should be closer than 50 metres to pines @ 35 to 40 metres in height, even then there is potentailly an issue with lack of sunlight. Once trees get beyond 15 to 20 metres most people need professional help to trim/remove them - this is expensive. A friend has a good sized stand of mature, easily accessible eucalypts which he wants removed - offered free to a local charitable organisation which specialises in firewood harvesting and employs ex prisoners. They don't want them! So a warning there on believing in potential value to others.
My view is plant for aesthetic reasons, shelter from wind and to encourage wildlife - BTW thanks GBH for the link to upland birds - I want to get some guinea fowl, they are real characters and fun to have a round.
Hope, skudiv, you can get yourself a block too!
OMG
Curious to know if pole houses are an answer to the ongoing 'quakes in Chch ?
..... also , from experience in Coober Pedy ( S.A. ) of dug-out houses , I wonder why this concept doesn't work equally well in cooler climates such as NZ ..... keeping the occupants warmer in winter , with less need for energy to warm up ...... less impact on the landscape too ...
subterrainean houses make sense in a hot dry climate Gummy, but not where there is lots of rainfall. Perhaps cold and dry would work also, so central Otago may be okay. Not so nice not having with limited light penetration into them. But earth is an excellent medium for thermally efficient houses and it is even possible to make them earthquake resistant.
Subterranean would also miss the opportunity to control the wind with the layout, but we don't do that with out sub standard urban design anyway.
Poles are excellent although they do not usually incorporate thermal mass into the design. But I have some ideas on that also:) You would have to continue the wood theme throughout a 'moving' house because it will play havoc with the joins in the plasterboard.
I have a few other ideas, but they would be prohibitive solely because of the costs involved in getting something out of the ordinary approved. I will build my own prototype one day and call it an experimental temporary structure. Might have to look into the interpretation of temporary though eh:)
The limited light penetration is one of the features that would appeal to me - not for the whole house, but for the bedrooms. Ideal combination for me would be a kind of hybrid - daytime/working rooms open to plenty of natural light, bedrooms tucked away and enclosed for quiet and darkness.
It is certainly advantageous to have complete darkness when sleeping as it helps with melatonin release. Although having worked shifts I just chuck a black t-shirt over my face. Quiet is nice also. Mind you I have a cousin with a truck load of kids and she trained them to sleep wherever she put them.
Light is not well considered in most of our houses.
Name your gnome of Zurich , Walter ... you should be able to nobble some rich nobs around here ..
I'd look at the history of such investments.....from my talks to ppl that have done such things they have made little or no money and thats based on past performance which now is simply not the case. We now have highly volitile and deflationary environment....and in a deflation/debt driven event cash is king....sure invest after drops the size of those seen in the Great Depression have taken off the stupid prices.....but I'd look to (dare I say it) property and being a landlord once houses are a lot cheaper...like 60% lower......
Also the problem of a paradgym shift in energy prices....the age of cheap oil is over, getting materials in difficult locations to far markets at commodity prices just looks dubious IMHO.
regards..
Thanks for the update Andy. I forgot to check the debt clock...
The Forbes piece, and your decision to link to it, tells us much more about them and you than about sensible investment strategies. They advocate investing in the currencies of Switzerland, Norway, Singapore, Australia and China. And the rigorous analysis that leads them and you to this 'safe' conclusion: "well, they've all gone up relative to the USD for the last x years". Exactly the logic that led people to pay inflated prices for US property before the GFC.
The question is : How much of Forbes argument attributable to hindsight bias ( i.e. the trend of the past will continue ) , and how much of their argument is based upon sound research and logic .......
...... they may be right , that all the ducks are lined up , and the trend lines are still in place ..
Or they may be wrong .......
Forbes is telling people what they want to hear. You know it Gummy. Those currencies have gone up against the USD because many people have put there money there, and they need a pat on the back from Forbes. The smart money wants to get out, and needs greater fools to sell to. Still seems irrelevent when you are living in NZ, with NZD. How many oz of gold or silver does it take to buy a house? Or the stock index? Hows that unmentioned safe haven going?
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