Gold Priced in British Pounds (GBP) – August 2012 Update

This is the regular gold priced in Pound Sterling update for August 2012.  The last update was in May 2012 and can be found here.

The chart below shows the Nominal Monthly Gold Price since 1979. 

Click to enlarge

Protecting Your Portfolio from Inflation – Index Linked Gilts (Linkers)

As a person who is not in debt and is saving hard for Retirement I am very conscious of the need to protect the purchasing power of my Retirement Investing Today Portfolio from the ravages of inflation.  Once I’ve done this I then need to work out how to get a real (after inflation) return.

If I am a debtor then inflation can help me as the real value of my debt becomes less as every day passes, however the opposite is true if you own assets.  Additionally, in a relatively low inflation environment, like we find ourselves today, it can be easy to ignore it.  In my opinion we just can’t afford to.  Even a small amount of annual inflation will wreak havoc on a non inflation protected portfolio over a relatively short period of time.

NS&I Index Linked Savings Certificates - Changes Announced

National Savings & Investments have announced changes to the way their Index Linked Savings Certificates operate.  These changes take effect on the 20 September 2012.  The link to the NS&I Announcement is here.

The change that hurts me the most is likely to be:
"penalty and loss of index-linking for cashing in early  
The penalty is equivalent to 90 days’ interest on the amount cashed in. And you’ll lose the index-linking on your whole Certificate for the investment year in which you cash in."
 
This is likely to hurt as should house prices resort to a sensible valuation I would likely liquidate all of my NS&I Index Linked Savings Certificates to maximise my deposit and hence minimise my mortgage rate.  Although at the rate we're going I won't have to worry about that for a long time.

Early Retirement Extreme vs Early Retirement vs Typical Retirement vs Late Retirement

There are a lot of Investment and Pension Calculators available online today.  They get you to plug in a number of pieces of data, make some assumptions and then tell you an answer.  This might be your total projected pension fund, your projected income or even the probability or reaching a financial goal.  I find these a useful tool and use them regularly except I find they have one failing.  They only ever give you a single answer based on the data you enter and don’t show you a helicopter view of how the various factors that Mr Market throws at you combined with the decisions made by the Average Investor interact.  I therefore decided to build a simple Retirement Investing Today model in Microsoft Excel and have found it informative.  I hope you do to and as always would welcome your feedback.

Before we look at the model let’s first look at why I decided to run this analysis in the first place.  In the circles that I move (both in the flesh and online) there seem to be broadly four types of Retirement at play.  Some people have planned for one type and achieved their goal but in many other instances people have planned for one and failed miserably.  How many times have your read or heard people say that I was on target to Retire by 50 (or some other random number) but then the market crashed and so now I’ll have to work a lot longer than planned.  Why do people get it so wrong?  I want to know so that I can avoid the same mistakes.

The FTSE 100 Cyclically Adjusted PE Ratio (FTSE 100 CAPE or PE10) – August 2012 Update

This is the Retirement Investing Today monthly update for the FTSE 100 Cyclically Adjusted PE (FTSE 100 CAPE).  Last month’s update can be found here.

As always before we look at the CAPE let us first look at other key FTSE 100 metrics:

• The FTSE 100 Price is currently 5,835 which is a 3.4% above the 01 July 2012 Price of 5,641 and 13.7% above the 01 August 2011 Price of 5,130.
• The FTSE 100 Dividend Yield is currently 3.69% having fallen back from 3.75% on the 01 July 2012.
• The FTSE 100 Price to Earnings (P/E) Ratio is currently 11.23 which is up 10.7% since the 01 July 2012 and 19.3% since the 01 August 2011.
• The Price and the P/E Ratio allows us to calculate the FTSE 100 As Reported Earnings (which are the last reported year’s earnings and are made up of the sum of the latest two half years earnings) as 520.  Of concern is that Earnings in nominal terms now seem to be falling with them down 6.6% since the 01 July 2012 and down 4.7% since the 01 August 2011.

The S&P 500 Cyclically Adjusted PE (aka S&P 500 or Shiller PE10 or CAPE) – August 2012 Update

This is the Retirement Investing Today monthly update for the S&P500 Cyclically Adjusted PE (S&P 500 CAPE).  Last month’s update can be found here.

Before we look at the CAPE let us first look at other key S&P 500 metrics:

• The S&P 500 Price is currently 1,406 which is 3.4% above last month’s Price of 1,360 and 18.6% above this time last year’s Price of 1,185.
• The S&P 500 Dividend Yield is currently 2.01%.
• The S&P As Reported Earnings (using a combination of actual and estimated earnings) are currently $90.02.
• The S&P 500 P/E Ratio is currently 15.6 which is up from last month’s 15.2.

The Greater Fool UK House Price Index – August 2012 Update

This is the monthly update of the Greater Fool UK House Price Index.  This is a unique feature which to my knowledge is only available on Retirement Investing Today.  The background to this House Price Index is available here.

Let us first look at the latest prices within the four datasets that are used to build the Index:

• The Rightmove House Price Index.  This index tracks asking prices of properties as they come onto the market.  Asking prices in July were £242,097 which month on month is a fall of 1.7% and year on year is an increase of 2.3%.

• The Halifax House Price Index.  This index is based on buying prices of houses where loan approvals are agreed by Halifax Bank of Scotland.  Sales prices in July were £162,619 which month on month is a fall of 0.4% and year on year is a fall of 1.3%. 

• The Nationwide House Price Index.  This index is based on buying prices of houses where loan approvals are agreed by Nationwide Building Society.  Sales prices in July were £164,389 which month on month is a fall of 0.8% and year on year is a fall of 2.6%. 

• The Land Registry House Price Index.  This contains the house prices for all transactions in England and Wales.  This includes both mortgages (which the Halifax and Nationwide would be included within) and non-mortgages (cash transactions).  Sales prices in June were £161,777 which month on month is an increase of 0.1% and year on year is an increase of 0.9%. 

The cheapest low cost SIPP (Self Invested Personal Pension)

Two pillars of my Retirement Investing Today strategy are to continually work to minimise expenses and taxes (total costs) while keeping to my required asset classes and investment types within the class.  I work on the principle that I can’t control what happens in the markets but I can control the costs of investing.  Now there is not much that is guaranteed in the investing world however I can’t think of any case where this strategy if done properly does not provide free return. 

UK House Affordability – August 2012 Update

 

The Nationwide today announced that nominally the average UK house now costs £164,389 which month on month is a fall of £1,349 or -0.8%.  Year on year the fall is £4,341 or -2.6%.  Nominally this puts prices back to levels last seen in mid 2006.

Looking at the Nationwide Historical House Price dataset in inflation adjusted terms (Chart 1), to account for the devaluation of sterling, it however tells a very different story.  This tells us that year on year real prices are down £9,006 or 5.2%.  By this measure UK house prices are back to levels last seen in May 2003.