Alternatives to NS&I Index Linked Savings Certificates? – July 2010 Update

The Retail Prices Index (RPI) is currently sitting at 4.8% while the Consumer Prices Index (CPI) is at 3.1%. It is highly likely that if you are holding any cash in bank accounts that you are therefore seeing your hard earned cash being slowly devalued. I know I am. Firstly let’s look at my chart for today. This shows that if you’re prepared to lock your money up for greater than 2 years then on average you can get around 3.7% gross. If you’re a 20% taxpayer then that means a net return of 2.96% and if you’re a 40% taxpayer then unfortunately your net return is 2.22%. Both of these values are less than both the CPI and the RPI meaning on average people’s savings are still being eroded. Provided inflation keeps tracking at these types of year on year percentages then the average rates after tax seem to be well behind the deal that was being offered by NS&I Index Linked Savings Certificates (ILSC’s). If you’re not sure how the returns were calculated on ILSC’s then have a look here.

If this is true then the US (and the UK for that matter) is doomed

I was reading the BBC article “US existing home sales drop to 10-year low” which was discussing the 27.2% fall in US existing homes during July compared to June. Of course the government were blamed because they ended tax credits designed to boost home sales. I could today talk about why the government are even in the market trying to boost sales when it should be a free market that is not manipulated. But I won’t because I came across a couple of quotes from Carey Leahey at Decision Economics which concerned me greatly. These were "I think [the July figure] is just suggestive of an economy that is definitely slowing down" and "unfortunately, it is a situation where we can't have a meaningful recovery without a meaningful consumer recovery, and we can't have a meaningful consumer recovery without a recovery in housing."

The lowest cost low cost SIPP

My employer offers a money purchase pension scheme administered through a large UK based insurance company. I have been making substantial contributions into this scheme over the last few years which now means that it makes up 31.7% of my Retirement Investing Low Charge Portfolio. In my opinion my employer is very generous with the salary sacrifice scheme they offer as they match my contributions up to a certain limit plus they also contribute the employers national insurance that they save through the salary sacrifice. In addition as a 40% tax payer I get this paid into the pension working on the principle that some day when I retire I will structure my finances so that I am a 20% (or whatever the appropriate lower tax rate is by then) taxpayer on the money that comes out of my pension. With I fair wind I might not even be in the UK having taken my pension elsewhere using the QROPS process. Of course most of you knew this as I had detailed this and more here.

The Boom Continues – Australian Property Market – August 2010 Update

With the Australian Bureau of Statistics (ABS) publishing its House Price Index on the 04 August and its Average Weekly Earnings Index yesterday I can again look at affordability of Australian Property. Of course regular readers will now that I have an interest in Australia as with a fair wind 6 years from now it could be a “retirement” location for me.

The Lost Decade – History of Severe Real S&P 500 Stock Bear Markets – August 2010 Update

At my first post on this topic, back in January 2010, looking at severe real S&P 500 bear markets I postulated whether once the governments of the world stopped stimulating their economies through borrowing and quantitative easing whether we could see a real -60% bear market from the previous high within this economic cycle. Well as I highlighted here there still seems to be life in governments (or their agencies) yet with the recent QE Lite announcement.

Readers Portfolios – Global Capitalist's 1st Post

To regular readers of Retirement Investing Today what you read in today’s post represents a significant milestone. That’s because up until today everything written was essentially my opinion which was then sometimes commented on by readers. Today that changes with the introduction of a new series of posts which detail the portfolio’s of readers of Retirement Investing Today. The first post is from Global Capitalist.

Adding more Emerging Markets Equities – db x-trackers XMEM

As I discussed yesterday my Emerging Markets Allocation in my Low Charge Portfolio had fallen to 3.2% against a target allocation of 5.0%. This was a variation of 37% against my target which was by far the worst of any of my asset classes. I’ve therefore used 0.8% of my total portfolio value held in cash to buy into the db x-trackers MSCI EMERGING MARKETS TRN INDEX ETF with ticker symbol XMEM on Friday afternoon. This gives me an allocation to emerging markets now of 4.0%.

It’s been a good year to date, well maybe it has - my Retirement Investing Today Current Low Charge Portfolio – August 2010

Why has it been good year to date for my portfolio? Well year to date my Personal Rate of Return is 3.9%, which compares favourably against my Benchmark Portfolio which has returned 3.0%. For non-regular readers my Benchmark Portfolio is as simple as it can get by using 28% iBoxx® Sterling Liquid Corporate Long-Dated Bond Index total return (capital & Income) index and 72% FTSE 100 total return (capital & income) index.

Interest rates at 0% haven’t worked, QE hasn’t worked, will QE Lite - S&P 500 cyclically adjusted PE (PE10 or CAPE) – August 2010 Update

In an attempt to try and force a recovery in the US the Federal Reserve have decided that they will undertake “QE Lite” which will entail using the proceeds from maturing mortgage bonds, which were bought using Quantitative Easing (money printing in my books), to now buy long dated government debt. I guess they are hoping that this will force bond yields down further which will reduce borrowing costs across the board for the average punter. I’m thinking two things:

Isn’t Greece doing well? Its people must be so proud – Aus, UK, US and the PIGS government 10 year bond yields – August 2010 update

It’s been a few months since I last had a look at the 10 year government bond yields of Australia, UK, US and the PIGS (Portugal, Italy, Greece, Spain) however with the IMF and others applauding Greece for their "vigorous implementation of the fiscal programme" I thought it might be a good time to revisit. Generally all yields since June 10 have either been flat or fallen which I think means the market sees investment in these countries carrying the same risk or less risk of default than previously. Let’s look quickly at the yields:
- Australia has gone from 5.11 to 5.16
- UK has gone from 3.35 to 3.22
- US has gone from 2.96 to 2.83
- Portugal has gone from 5.98 to 5.06
- Italy has gone from 4.10 to 3.79
- Greece has gone from 10.60 to 10.31
- Spain has gone from 4.70 to 4.07

The market is climbing from its June low - Australian (ASX 200) stock market plus its PE10 – August 2010 Update

The Australian stock market index, the ASX200, closed on Friday at 4566. This means that since the June average low of 4302 the market has risen by 6% in a little over one month. As of Fridays close the cyclically adjusted PE ratio (ASX200 PE10 or CAPE) has risen from 16.51 in June to 17.36. This can all be clearly seen in my first chart today.

It was all so predictable - Bank of England Rate held at 0.5% - August 2010 Update

Today’s decision by the Bank of England to hold the Official Bank Rate at 0.5% for the 17th month in a row was so predictable that I nearly didn’t bother posting today. As I’ve been saying for a while I think they are going to try and inflate some debts away but I’m starting to become concerned by this strategy for a number of reasons.

My first FTSE 100 cyclically adjusted PE ratio update – August 2010

As regular readers will know I monthly follow the cyclically adjusted PE ratios, also known as a CAPE or PE10, for both the US S&P 500 and the Australian ASX 200. Based on this information I make tactical asset allocations to my equity funds with the only exception being my allocation to emerging markets. Today though is quite exciting because it’s the first update of a brand new dataset which I first introduced here. That dataset is the FTSE 100 CAPE or FTSE 100 PE10 and it is the ratio of the Real (inflation adjusted) Price divided by the average Real Earnings of the last 10 years for the FTSE 100.

The British Pound is undervalued

Given the current state of the UK economy today’s post title might be seen as pretty reckless however I’m not so sure. I’m not talking short term trader talk here rather I’m sitting here writing this post thinking as a long term investor. This thought has come about after MoneyWeek referred to the Big Mac Index which is an informal way to determine whether a currency is over or under valued based on purchasing power parity. The theory is that the same item should cost roughly the same anywhere in the world. In my opinion this theory is probably a little naive as the Big Mac Index is based on a price which is what the product is sold for. A price is of course the cost of producing the product plus any profit and I know from companies I have worked for that price is not correlated in any way to cost in different countries where products were sold. That is profits in absolute or percentage terms for an identical product can be very different in different parts of the world. If McDonalds has the same pricing policy then this could skew the index. I guess with some time one could also pull together a Starbucks Index, an Apple iPhone Index or even a Samsung 32” LCD TV index.