John Stepek highlights some of the best bits from our free emails, newsletters, blog and MoneyWeek magazine that we’ve published in the past week.
● I don’t normally think of the Budget as light relief. And I suspect I’m not alone in that. But given the grim backdrop of war in Libya (not to mention upheaval in Syria and Yemen) and ongoing nuclear woes in Japan, it was almost a welcome distraction to sit down to watch George Osborne on Wednesday afternoon.
● Broadly speaking, I think he got it right. There was too much fiddling for my liking – things like enterprise zones strike me as gimmicky. And Gordon Brown would have been proud of the move to index direct taxes to consumer price inflation rather than the typically more generous retail price inflation. That’ll mean we all end up on higher tax bands more quickly than we’d otherwise have expected.
But as I said in Thursday’s Money Morning, it was a step in the right direction. George Osborne made all the right noises about encouraging businesses to locate, expand and remain in the UK. And the general aim of tax simplification is good news, even if it’ll be a lot more politically sticky than we might imagine, as my colleague Merryn Somerset Webb pointed out.
Enough of my view – what did you think of the budget? Add your comments below.
● Of course, one Budget can’t cure our economic problems. There are two big worries for Britain now: one is whether or not the economy can handle austerity; and the second biggie is inflation. The Bank of England seems no closer to raising interest rates, even although the cost of living, as measured by the Retail Price Index, is now rising at 5.5% a year.
The bad news is that inflation is making it harder to turn around the economy. It makes ‘the cuts’ deeper in real terms, it pushes up the government’s spending at a time when tax revenues aren’t compensating – so the idea that a bit of inflation will help us alleviate our debts is just nonsense. But with Mervyn King still terrified of sending us back into recession, we might see inflation rise an awful lot higher before anyone is forced into action.
● That means you have to protect yourself. Our deputy editor Tim Bennett has covered price inflation (as opposed to inflation of the money supply), why it matters, and some options for what to do about it, in as my colleague Merryn Somerset Webb pointed out.
Tim covers a different topic almost every week, and now has built quite a library. If you want to know what a p/e ratio is, why you need an Isa, or a primer on something a bit more obscure like the yen carry trade – each in less than 15 minutes – then check out the archive here.
● One of the options to guard against inflation which Tim mentions in the video is blue-chip stocks, paying decent dividends. Now obviously, like any shares, these involve risking your capital. But Stephen Bland, who writes The Dividend Letter, reckons buying these sorts of stocks is a solid strategy. And his own performance over the past three years proves it, as he says in his latest issue.
The Dividend Letter launched in March 2008, when the economy was looking very wobbly, and the Lehman Brothers collapse was on the horizon. Not the best time for anyone to be trying to build a portfolio of stocks from scratch.
As Stephen puts it: “Recessions, bear markets and dividend slashing are inevitable in the very long term for which I intend my strategy… it was just bad luck that we were hit immediately after launch.”
And yet, his first ‘high-yield portfolio’ has still managed to come through this baptism of fire to deliver a decent income over the period, and capital gains too. “This was no ordinary three-year period. It was one of the nastiest I’ve seen for a long while. It tried to test my strategy almost to destruction – and failed miserably. As I was sure would happen.”
For me, the best thing about Stephen’s strategy is that it’s simple to follow. You buy one stock a month, and you sit on it. That’s it. No bells or whistles. No options, spread betting, or target prices. And once you’ve built your portfolio you can virtually forget about it. If you want to invest but find time to enjoy your life as well, this is the strategy for you.
● As always, it was a piece about property prices that drew the most comments on the MoneyWeek website this week. My colleague Merryn Somerset Webb wrote about how rising interest rates could topple UK house prices. Why? Because apparently 90% of homeowners are now on variable rate mortgages.
Looking at all our reader comments, one regular reader, Alex, said Merryn was just “stating the obvious” – although if it’s that obvious I’m not sure why prices haven’t toppled yet. Ellen pointed out that “if the BoE had raised rates very slowly from the end of last year, the housing market could have deflated slowly… the longer the rate is left unchanged, the worse it’s going to get… keeping the base rate at 0.5% for so long sacrifices the many to save the few.”
Judy Pallant took a longer-term view, noting that: “If the younger generation cannot afford to buy homes until they are about 37, or are stuck with having to pay increased rents, who will have the babies that will grow up to look after the current 50-year olds when they reach old age? The government and the BoE must start thinking of future needs and the demographics involved… it’s about a lot more than who is making a clever profit and who is not.”
There are plenty of other interesting posts – go ahead and read them, then join the debate.
● This week’s ‘must-see’ MoneyWeek article had to be Simon Caufield’s Money Morning on Monday. Among the many flattering comments beneath his piece was: “One of the best articles that I have read in Money Morning“.
Clearly this sent the rest of the Money Morning team – David, Dominic and I – into a competitive rage. But we had to grudgingly agree that it is indeed an excellent piece, with some extremely good advice about successful investing. And it was accompanied by an equally good report on value investing. If you missed it, read the piece, leave your comments, and download the report (which is completely free), Simon Caufield’s Money Morning on Monday.
● And this Monday, Simon is back. You’ll have the chance to pick up your second free report in his series on value investing. And just as a teaser for the weekend, you might be interested to know the title of his article: ‘The world’s third-largest bank is bust‘. Don’t miss it.
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Have a great weekend!
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• John Stepek
• Tim Bennett
• Ruth Jackson
• James McKeigue
• David Stevenson