Looking for comment on protecting against inflation

[Clariman]

One more practical question. Are the wealth protection funds via a provider like iWeb protected by FSCS? Or do they simply not apply because your funds are, de facto, at risk?

Thanks

[AsleepInYorkshire]

Secondly I have no regrets about our past decisions. Perhaps I am unusual, but I'm not motivated to maximise my wealth to the nth degree. The most important objective for us has always been to be financially secure and lead a comfortable life. I have no desire for expensive watches, a Porsche, designer clothing and other trappings of 'wealth'. We have always lived below our means and that is why we have constantly grown what we have and continue to do in retirement.

There are 2 broad ways of growing one's wealth. One is to live well within one's means and save, and the other is to invest for growth. Obviously combining the two will get the greatest wealth but we did well enough with the former, while taking minimal risk.

BTW I know that many people need to invest for their pensions to have enough for a comfortable life, so I am not criticising others for their motivations and decisions. I'm just explaining our motivations because I think some posters are shocked at our lack of investing ambition and our risk averse nature.

C

Hi Mr C,

I hope you and your family are all well and perhaps as the weather improves preparing for some stealthy trips into the outdoors. I've spent 42 years looking after the money of the business that employs me. There's nothing I haven't seen first hand about the depths to which people will stoop to obtain money. My daughter is 15 in May. We share the same birthday. I've spent considerable time trying to explain to her the value of money. It's use for paying bills. For providing a day out with the family. For buying Christmas presents. Or even for giving to charity. She has £5,600 in her current account. She has another £1,800 in a cash ISA and she has another £1,600 in her savings account. That's all going into this years ISA allowance for her.

We're not rich. But we are able to support her with savings. When we go to Meadow Hall (Murder Hell) shopping she doesn't go mad. She looks for value and thinks seriously about her purchases. She bought herself a watch recently. £50.00. She spent £72 to buy her Mother's Day present for Mum.

Money needs to be dealt with by a strategy. And as you rightly point out we can all improve our financial stability by tempering our material needs. I've a decent car. It cost £16K new 5 years ago. It does over 60mpg on the motorways and so far the only costs have been wear and tear. I do a fair amount of mileage, although Covid has curtailed that. I won't ever sell the car. It will be replaced when its not viable to keep it going. I'll get another 7 years out of it. I retire fully in 7 years. So the overall cost of the car, a tool I need for my work, is going to work out very cheap.

We all have different approaches to how we look after our money.

Your strategy is almost identical to ours. And over time, even with some heavy financial problems caused by my health, we have seen that strategy pay off.

The benefits of that strategy are

1. We have cash in the bank. Enough to pay all the bills for 4 1/2 years without my income.
2. We can buy something at the right price, in a sale for example.
3. Our disposable income when I am working is about £4K per month. Most of that goes into pensions & JISA's

Our kitchen functions. But at 27 years old and doors hanging off it needs replacing. But that can wait. We've just about finished the lounge and dining room. We've done two bedrooms, the ensuite and our daughters "lounge". We do most of the work ourselves although I have now accepted, after 40 years of doing all our decorating that, it's time to pay for a decorator.

Before I am berated for going off topic let me save my sorry skin

I don't like inflation. I don't like high interest rates. I don't like the thought of no work. But our little strategy seems to have paid off in the long run and we have some "safety" against downside through the nasties presented to us on a regular basis, by macro economic events.

Had I not have had protracted health problems we would be far better off today than we are and probably able to retire earlier than we now anticipate. But sometimes life doesn't go to plan.

AiY(D)

[absolutezero]

One more practical question. Are the wealth protection funds via a provider like iWeb protected by FSCS? Or do they simply not apply because your funds are, de facto, at risk?

Thanks

As I understand it.
Assets held via a broker are FSCS protected up to a LOSS of £85,000 should the broker go bust.
They are not protected if the asset itself goes bust.

[Itsallaguess]

I have no regrets about our past decisions. Perhaps I am unusual, but I'm not motivated to maximise my wealth to the nth degree. The most important objective for us has always been to be financially secure and lead a comfortable life. I have no desire for expensive watches, a Porsche, designer clothing and other trappings of 'wealth'. We have always lived below our means and that is why we have constantly grown what we have and continue to do in retirement.

There are 2 broad ways of growing one's wealth. One is to live well within one's means and save, and the other is to invest for growth. Obviously combining the two will get the greatest wealth but we did well enough with the former, while taking minimal risk.

BTW I know that many people need to invest for their pensions to have enough for a comfortable life, so I am not criticising others for their motivations and decisions. I'm just explaining our motivations because I think some posters are shocked at our lack of investing ambition and our risk averse nature.

I would think I'm probably quite closely aligned with your own attitude to the broader question of finances, and where we might differ more substantially is purely on that word 'risk'...

You see yourself as 'risk averse', but I was trying to suggest that risk isn't a single red pebble on the floor that we either pick up and carry, or choose not to, and sometimes we can be carrying all sorts of differently coloured 'risk pebbles' through various stages of the inevitable market cycles, even when we don't think we are, and given that this is the 'Investment Strategies' board, I thought it worth highlighting that some of those *different* risks that we've been perhaps carrying 'unawares' can sometimes only become more clearly apparent some time much later...

I also think it's interesting that you might be looking to take on a little more risk at this current time, with cash assets that you've protected previously due to being 'risk averse', and I think that neatly sums up the conundrum we've all got with our different views as to what 'risk' might mean to us personally...

Cheers,

Itsallaguess

[Clariman]

You see yourself as 'risk averse', but I was trying to suggest that risk isn't a single red pebble on the floor that we either pick up and carry, or choose not to, and sometimes we can be carrying all sorts of differently coloured 'risk pebbles' through various stages of the inevitable market cycles, even when we don't think we are, and given that this is the 'Investment Strategies' board, I thought it worth highlighting that some of those *different* risks that we've been perhaps carrying 'unawares' can sometimes only become more clearly apparent some time much later...

I get that, but perhaps I was not expressing myself precisely enough. Perhaps it is more accurate to say that there are some risks which I find more acceptable than others, rather than being simply 'risk averse'. For example, I am well aware that my cash savings were at risk of being eroded, but I work hard to find the best interest rates and with low inflation, any loss was not overly concerning. That coupled with the fact that I regularly check our overall net-worth and am pleased to see it is still growing (even in retirement), indicates that the risk is well mitigated.

I also think it's interesting that you might be looking to take on a little more risk at this current time, with cash assets that you've protected previously due to being 'risk averse', and I think that neatly sums up the conundrum we've all got with our different views as to what 'risk' might mean to us personally...

The reason I am looking at it now is simple. The numbers have changed. Interest rates on my Fixed Rate bonds and most ISAs are immovable for now, but inflation has risen to approaching 8%, so the difference between the two is no longer acceptable.

C

[Gan020]

One more practical question. Are the wealth protection funds via a provider like iWeb protected by FSCS? Or do they simply not apply because your funds are, de facto, at risk?

Thanks

As I understand it.
Assets held via a broker are FSCS protected up to a LOSS of £85,000 should the broker go bust.
They are not protected if the asset itself goes bust.

My understanding is:
Cash held in your broker account is protected up to £85k minimum and possibly more. See this article from HL which as I read it suggests in practice at least for them the cover is higher. https://www.hl.co.uk/about-us/cash
All other assets (equities, bonds, funds, ETF's etc) are 100% protected (provided the broker has actually bought them and holds the asset. If the broker has not actually bought your asset for whatever reason that is likely to be a problem)

[tjh290633]

Our investments are split: property 43%, cash 42%, equities 15%. We are risk averse, so our objective is to maintain our investment value, ideally with some growth. We accept that we have lost growth opportunity by being so cautious. However, with inflation now at significant levels again, our large cash element will lose value pretty quickly, so need to consider what to do with it. About 65% of it is in cash-ISAs, the rest in bonds with a little easy access. The equities are all in either index trackers or funds, all within ISAs.

Our life stage is that we retired in our 50s and both have final salary pensions which are mostly index-linked - and we are now taking them. State pensions are a few years away but we live comfortably now on pension, some very part time earning and property income.

So my broad question is where would you go to protect our investment value rather than to grow it? We could convert the cash into a property from which we could get income and hopefully growth but that would require maintenance and management. I'm not adverse to that but house prices have risen quite a lot recently. Presumably we can still transfer-in cash-ISA money into equity ISAs?

Thanks
Clariman

I found out long ago that capital values were lesser in importance than the income generated. However that income had to grow, ideally faster than the rate of inflation. I recall back in the 1970s, when it was not permitted to raise dividends, my then employer had a rights issue at par value and so doubled the payout. We also got round the pay freeze by having a longer working week.

My principle has been always to invest in shares that pay reasonable dividends, ideally giving yields at least as high as the market average. Share prices go up and down, but dividends follow a different trajectory. From time to time, dividends have had a setback but usually recover fairly quickly. I say usually because recovery from the 2008-9 setback took much longer. It was necessary to get rid of a few holdings which disappointed and some were taken over.

Having said all that, my portfolio reached a new high value last night. I like to think that the dividends pulled them up, but the highest payers, BHP and RIO, have fallen in value recently.

Twas ever thus.

TJH

[Hariseldon58]

I think it's interesting that the focus of the opening post is primarily about how to protect the situation 'from here' going forwards, and the thread has quite rightly covered some of the risk-related aspects about that 'current situation', but given that this is the 'Investment Strategies' board, I think it's also worth highlighting that the OP might now *also* be paying the price for being too risk-averse and cash-heavy during a multi-year period where some more worthwhile equity-related gains could well have softened the blow a little, in terms of the inflation-based risks we all must face from this point onwards....

A classic 'I wouldn't start from there' situation then, and an indication that, looking backwards, there was a clear risk in not taking on a little more risk during those fruitful years for equities

I don't disagree with your observation but I'd make two comments. Firstly, I am looking ahead to decide what actions to take now in order to protect what we have. Even if I wanted to, I cannot change the past.

Secondly I have no regrets about our past decisions. Perhaps I am unusual, but I'm not motivated to maximise my wealth to the nth degree. The most important objective for us has always been to be financially secure and lead a comfortable life. I have no desire for expensive watches, a Porsche, designer clothing and other trappings of 'wealth'. We have always lived below our means and that is why we have constantly grown what we have and continue to do in retirement.

There are 2 broad ways of growing one's wealth. One is to live well within one's means and save, and the other is to invest for growth. Obviously combining the two will get the greatest wealth but we did well enough with the former, while taking minimal risk.

BTW I know that many people need to invest for their pensions to have enough for a comfortable life, so I am not criticising others for their motivations and decisions. I'm just explaining our motivations because I think some posters are shocked at our lack of investing ambition and our risk averse nature.

C

I believe I understand your position, the idea is not to fail your financial objectives rather than exceed them. The suggested wealth preservation Investment Trusts would fulfil that role on an ongoing basis with no maintenance. An alternate is the mix of Vanguard LifeStrategy 80 Accumulation with a chunk of ITPS (iShares US Treasury Inflation Protected Securities unhedged $) it could be left untouched for years and it would work out pretty good. In truth it is what is at the heart of the wealth preservation trusts and is cheaper. Throw in enough ‘cash’ to provide reassurance and get on with life.

[MrFoolish]

You could always drip feed your cash into equities. You'll escape that FOMO and it's not a massively risky way of doing it. When you are drip feeding, you won't really care if prices go up or down.

UK shares are not that demandingly priced at the moment. There must be cash rich financial institutions in the US who are looking for bargains over here, so perhaps you might benefit from a takeover or two. And you should pull in reasonable dividends in the meantime.

No guarantees of course.

[1nvest]

Our investments are split: property 43%, cash 42%, equities 15%.

So my broad question is where would you go to protect our investment value rather than to grow it?

So 25/75 current liquid assets stock/cash
-> 25/50/25 stock/cash/gold

Click the 'inflation adjusted' tickbox in this US data link and compare.

Very much a Harry Browne Permanent Portfolio (25% each in stocks, 1 year gilt, 20 year gilt, gold) but with the 25% long dated Gilts shifted down into short term holdings, which is totally reasonable given the present climate/situation. Instead of 50% in 1 and 20 year treasury bonds that combine to a central 10 year bullet, its quite commonly suggested to shorten down bond duration/maturity when yields are excessively low. Harry suggested the PP to be for the money you can't afford to lose.

[SteadyAim]

You could shift 20% cash into equities, split equally between a FTSE 100 tracker and a FTSE 250 tracker (probably buying ETFs, in ISAs where possible). This would give you an increased income now (in the 3-4% area) compared to cash, and that income should rise in the medium/longer term. A few years ago I would have suggested an estimate of 2% inflation + 2% gdp growth for 4% overall growth of the income ... obviously all bets are off now, your guess is as good as mine for the growth.

The UK market is at much more reasonable valuations than much of the world (note that the divi yield is higher than the interest on gilts, which is "unusual", or I would simply say "wrong"), which reduces the downside if/when markets fall, and buying trackers avoids any risk of buying the "wrong" managed fund. Once invested you can just leave this money for ever, no need to check the valuations, or check the manager is still ok, or ... just take the income and decide what to spend it on. If the income drops for a year or two spend less, when it goes up, spend more. I don't see any need to worry about the capital, if the FTSE goes to zero we've probably got bigger things to worry about than 20% of our portfolios. Companies in these indexes do roughly 75% and 50% of their business outside the UK, so you automatically get some UK bias, but a good amount of exposure to the world economy.

[Urbandreamer]

This weeks Investor's chronicle podcast is an interview with Sebastian Lyon, who manages the capital preservation IT, Personal Assets Trust (PNL).

https://www.investorschronicle.co.uk/po ... inflation/

I found it quite interesting and you might also.

FWIW I don't hold PNL but Ruffer is currently one of my larger holdings.

[PhaseThree]

Capital Gearing and Ruffer discussed in today's Questor column in the telegraph (If you can get past the paywall)
https://www.telegraph.co.uk/investing/s ... portfolio/

[absolutezero]

Capital Gearing and Ruffer discussed in today's Questor column in the telegraph (If you can get past the paywall)
https://www.telegraph.co.uk/investing/s ... portfolio/

Hit escape multiple times as it is loading up.
If that fails refresh and repeat.

[simoan]

This weeks Investor's chronicle podcast is an interview with Sebastian Lyon, who manages the capital preservation IT, Personal Assets Trust (PNL).

https://www.investorschronicle.co.uk/po ... inflation/

I found it quite interesting and you might also.

Thanks for the link, a very interesting interview. From an equity perspective he has a very similar outlook to Terry Smith and I see his two biggest equity positions are Alphabet and Microsoft. I know it's confirmation bias, but it's nice to hear that he also does not consider the effect of inflation on the cash portion of his portfolio because of the overall risk and volatility protection, plus liquidity and optionality it provides. I also agree with him about gold i.e. you've got to have enough for it to make a difference but not too much, and to avoid gold miners. I've never looked at Franco-Nevada (which generates royalties from gold miners, and so is higher up the food chain) but will do so later today.

All the best, Si

[richfool]

Clariman, this might be of interest to you:

https://www.theaic.co.uk/aic/news/cityw ... us-markets

I too would not look at (avoid) RIT Capital Partners if I was looking for strictly defensive stocks.

And also this one from the Telegraph:

https://www.telegraph.co.uk/investing/s ... portfolio/

[TUK020]

I suggest that you consider a small proportion (5%?) of your assets be in gold (in the form of Physical Gold ETFs, or alternatively in a Gold producers ETF if you want more leverage).

Think of this not as a plan to get outsized returns, but more as an insurance policy against some unthinkably horrible outcome - e.g. what happens if Putin lets off a tactical nuke in Ukraine? In such an event, what do you think would happen to equity markets? any commercial bond? Safe haven assets?

[Gerry557]

I just wonder, looking ahead, what the biggest risk is?

How long will the 7% inflation last? I heard mention of a year. Interest rises are also expected to kick in to help counter this.

So the differential might close in time. What will next year inflation be 3-4%?

So property, bonds, equities might all suffer but would they suffer more than inflation. Cash might be worth 40% more if they take a dip even after inflation.

These are just speculation of what might happen. Im not sure I can advise you what to do as I would probably never keep that much cash long term. As others have pointed out, equities with income offer higher rates and that income can be reinvested or turned into cash.

The 43% property doesn't explain if there is any income from it or any debts (mortgage BTL) or if this includes your main residence. I would exclude the main residence if it was. Also the number of properties. A few might give you more options and diversity compared to x1 BTL. Inflation might be good if you have cheap debt.

I expect property to come off the boil next year but rents might cover income expected. Would you want to sell if price drops were to kick in or are you in a position to ride it out. Ie not particularly worried about capital.

Equities might also come off the boil so having some funds available might be useful. one year of 7% equity income would have produced more than several years of cash returns. I think that might sway me a little more. At your age, you also have time on your side to ride out bumps in the market. Generally income remains much steadier than capital. There was an article about a "bad" investor who invested lump sums at all the market peaks. This turned out to be ok as time in the markets was deemed more important and offset the "bad" investments. You also have limited ISA limits so be quick if you want to use this years.

Or just pick 7 good numbers on the lottery.

[Clariman]

A few have asked so happy to answer. The property does not include our home. It does provide some income.