John Lowe the Money Doctor gives invaluable advice on the stock market and reveals the secrets of successful stock-market investment in the first of three parts.
Mark Twain was right – October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February. These are still nervous times and when it comes to the stock market, I am reminded of the famous Clash song should I stay or should I go ( 40 years old this year ) ?
Bear in mind the stock market is singularly the best return over any 10 year period of any asset class. Timing is everything. Remember James Goldsmith’s great line if you see a bandwagon, its too late. Despite Brexit, Trump, Korea and mankind’s best attempts at pessimism, the stock market is still soaring ahead. With deposit interest rates at an all time historical low, is it any wonder investors are scavenging for any opportunity from any source of a decent return on their money. When the best net demand deposit rate in Ireland is currently 0.295% ( KBC Bank gross rate is 0.5% ) the stock market provides a glimmer of hope for investors.
I like to simplify investment visually through my Money Doctor boxes’ analogy :
CASH boxes … keeping everything in cash…
| Mattress |
| Demand a/cs |
| Notice a/cs |
| 6/9 months fixed a/cs |
| 1 & 3 year fixed a/cs |
| 5 & 10 yr fixed a/cs |
ALTERNATIVE INVESTMENT boxes .. diversifying in every asset class and sector globally…
| Stock market incl CFDs derivatives etc |
| Commodities incl gold |
| Property |
| Art |
| Classic cars |
| Rock ‘n roll memorabilia & other collectibles |
| Other |
For the last 8 years, the 2nd longest bull run (a stock market rise since the last “correction”) continues unabated – the stock market has grown over 200%+ since March 2009….but where is it going now and which sectors, which asset classes ? Trying to individualise stock selection is a mug’s game – the humourous but unfair definition of a stockbroker is someone you give your money to until it is all gone…. No one – stockbrokers, clairvoyants, financial advisers – can predict when the next Bear market (taking a dive) will arrive. We have had 26 Bull markets and 25 Bear markets – it is just a matter of time ..when will the next Bear market come ? ( the Bull has to drop by more than 20% to be declared a Bear ). All one can do is take educated gambles and spread that risk but ONLY if you are prepared to take SOME risk. Staying in cash may be safe but effectively your return is generally negative once you take into account current rates and the fees and charges. Investment is all about the return on your capital but also about managing risk and taking it too.
Current deposit interest rates as I said are now nearly matching the historical lows of the ECB interest rates. Some of the current offerings include
- Best 10 year return is State Savings (NTMA) their National Solidarity Bond yielding 16% TAX FREE Grossed up at 41% ( the current DIRT tax rate ) it is equivalent to 2.54% each year.. maximum investment is € 120,000 per person ( minimum € 500 ) This is the very best deposit rate in Ireland on a guaranteed ( by the government ) cash deposit account.
- Best 12 month notice account is 0.75% ( Permanent TSB ) net 0.4425%
Interest rates are likely to stay low for some time – Draghi hinted til 2018 at least – so what can investors looking for better returns do ? … if you want growth, you MUST take some risk…and to make the decision to invest outside of those deposit boxes – the safety net – you would want to see at least a potential doubling of the best deposit interest rate available as a return to justify that decision .. plus you may also need a mix of both “boxes”
Remember Warren Buffet’s wise words the stock market is a mechanism for transferring money from the impatient to the patient. It’s not a sprint, it’s a marathon. Stick with me. Part two next week.