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Stewart Cowley: eight things you need to know in Q3 2013
by Stewart Cowley on Sep 09, 2013 at 13:45
If I was Ben Bernanke I would want to say 'I inherited a mess. I fixed it and I am leaving the place with the economy back on track. Goodnight.' whilst reversing out of these support practices before January.
4) Broken Europe
Europe still isn’t fixed. If anything things have gotten somewhat worse and there will be further problems to deal with in the coming months not least of which is to find out who exactly is holding up the Italian and Spanish bond markets. At least they have the money to buy Gareth Bale.
5) Yesterday's problems
Don’t build portfolios for yesterday’s problems just because you missed them the first time. It can feel uncomfortable sometimes but now is not the time to be using the investment policies that may have worked for you in the past three years.
We are fundamentally in a different place – the US is leading the pack with the UK and Japan following whilst Europe is in a mire that could last for years whilst the emerging markets have shown themselves to be the creatures of US quantitative easing.
When people say 'But where’s the inflation?' hold up a copy of the Financial Times to their faces and say 'Here it is…' Government numbers showing inflation at 2% isn’t the story. Inflation should include financial assets.
Essentially we have had several years’ returns front loaded and some of it will have to be given back on the way out of the support processes. We may have a year when we have to explain to our clients that they have a negative return on their portfolio because the economy is really good.
7) The income demand
We are increasingly in an income hungry world – be demanding with income-based investments. Official interest rates are going to stay low for a long time and investors aren’t being paid for the risks they are taking elsewhere in the system.
To lead 'a millionaire lifestyle' you will need over £6 million of investments to create the income stream you would need.
If you wanted to do it by working you’d have to have a gross income of over £300k year. Given that you can comfortably fit the people who earned over £1 million last year into half of a Championship football stadium, the self-sustaining millionaire is actually a rare beast.
8) Understand the risk
Don’t take risks you don’t have to take or don’t understand. There is plenty of time and what we should have learned is that markets are now inherently more volatile than they have ever been – one small mistake and you can rub out months of work.
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