In 2008 we suggested you pile your spare cash into an account with Northern Rock. Not only were you getting an interest rate of 7%, but the government had said it would fully back every deposit. So you got a well-above-inflation return, absolutely risk free.
Those were the days. Now things don’t look so good. Northern Rock’s rates hover around the 2%-3% mark, well below the 4.4% that basic-rate taxpayers have to get before they make a real return. You can’t get much better elsewhere either. The average instant-access account pays just 0.73%. The best fixed-rate deals come in at around 3%. And the government is now removing Northern Rock’s state guarantee. So you can no longer even console yourself with the idea that your money is 100% safe.
So what’s a saver to do? Well, assuming you’re in cash because you can’t or won’t risk your capital, just find the best rate you can, aim to keep under £50,000 (the sum covered by the Financial Services Compensation Scheme) in any one account, and live with it. Do anything else and you risk losing a lot more than the couple of percent inflation is stealing from you each year.
Take Anthony Bolton’s new China fund. For many, being in China and, in particular, being in China with Bolton, looks a sure thing. Why? We’ll let Bolton answer: “I believe that China’s economy could expand at nearly 8% a year between 2011 and 2020, and by more than 5% a year over the subsequent ten years. The sheer scale of China, with its population of more than 1.3 billion, means the world may neverhave seen anything like the economic transformation that lies ahead.” As I’ve noted before, I don’t agree with him on the growth bit. But even if I did, I wouldn’t buy China. First, economic growth doesn’t automatically translate into stockmarket performance. Second, Chinese stocks already trade at an undeserved premium to many Western stocks.
But it isn’t just the price of Chinese stocks that bothers me. It’s the price of the fund itself. I hate the fact that it’s paying commission to financial advisers. This is very unusual and sets a bad precedent. If the fund is so great then why should you have to pay people to suggest it to their clients? I also think the management fee at 1.5% is far too high. If Fidelity raises the $1bn it wants, that means it will pull in $15m a year just to pay for Bolton and a few overheads. Nice work. I also hate the performance fee element. The rest of us get paid our salaries to do our jobs to the best of our abilities. We don’t get more money just because we do. Why should Bolton?
Buy this fund and it looks to me like all you’ll get is a lot of expensive risk. The only risk-free place for your cash is a state-backed bank account paying a couple of percent above inflation. And they, I’m sad to say, no longer exist.