• Kim Jong Il picked the right time to die – looking back over 2011, North Korea was about the only place untouched by revolution this year.
It kicked off with revolution in the Middle East, and the Arab Spring. We then had revolution in Europe: Italian and Greek leaders were kicked out and replaced with ‘technocrats’. We had Occupy Wall Street, who wanted to get rid of both bankers and capitalism (sadly the protestors missed the point, and the true scandal, which is that capitalism would have got rid of the bankers if it had been allowed to function).
And beneath all the surface headlines about Europe, concerns over China’s growth grew ever greater. The country’s property bubble seems to have well and truly burst.
China’s woes are one reason why I suspect commodities are not going to be a good place to be in 2012. Copper peaked in February this year, but the whole industrial metals sector could have further to fall.
The good news is that there are quite a few ways to play this, both from a trader’s point of view and on a longer-term basis. I covered a few of them in Thursday’s Money Morning. In short, you can bet against Australia (which might as well be a far-flung territory of China, economically speaking), and you can bet on America, as the US dollar rises.
• The general fear of collapse spreading around the global economy is also a reason why we’re still happy to hold on to gold. It has had yet another year of gains (it’s up around 13%, one of the best-performing asset classes of the year).
As we noted last week, we’ve never advocated having 100% of your wealth in gold (or in anything else for that matter). So if you’ve been holding it for a while, then you should take some time to check your asset allocation over the Christmas period. (Tim Bennett explains a bit more about how to rebalance your portfolio in the current issue of MoneyWeek magazine – If you’re not already a subscriber, subscribe to MoneyWeek magazine.)
But by the same token, if you don’t think you have enough gold, now might be a good time to top up your holding – I added some more to my own portfolio earlier this month.
• So it’s been a hectic year. But looking at the FTSE 100’s performance in 2011, you wouldn’t realise for a minute that it had been so crammed full of nail-biting moments. The UK blue-chip index looks likely to end the year down just 8%. That’s a pretty duff return, but it’s hardly apocalyptic.
Stephen Bland, who writes The Dividend Letter newsletter, wouldn’t be surprised by this. Stephen makes a point of ignoring the news. As far as he’s concerned, it’s a distraction. And he’s right.
There are plenty of studies that show that paying too much attention to the market’s day-to-day movements will just encourage you to trade more. And the more you trade, the more mistakes you make, and the more costs you rack up. So if you’re going to make any investing resolutions this year, then one of them should be to avoid the 24-hour news channels.
But Stephen takes it a lot further. His ideal holding period is forever. And he’s not joking. Once he buys a stock, he doesn’t sell it unless he has to – basically, unless the company is taken over.
So what’s his strategy? It’s simple. He looks for big blue-chip stocks that are paying above-average dividend yields. He checks that they have no debt, or manageable debt. He tips one such stock a month, each in a different sector of the market. Once he’s reached 20 stocks, you have a complete portfolio.
After that, you just sit back and watch the dividend income roll in – you can reinvest it if you’re building a pot, or use it to supplement your income if you are in the retirement phase of your life.
I think this is a great strategy. It’s simple. It’s cheap. It’s conservative (in as much as investing in risk assets ever are). And it’s the sort of thing that a normal investor – who happens to have a life beyond worrying about the financial markets – can easily stick to, regardless of what stage of the investing game they’re at.
If part of your plan for this year is to get your finances in order and to start putting money to work for your retirement, then you can make a great start right now by finding out more about The Dividend Letter.
• If you’d rather learn a bit more about investing in general, then you should look through our list of free video tutorials. My colleague Tim Bennett now has a virtual library of stuff on almost any investment topic you care to mention. If you’re quite new to investing, this one is a good place to start: Tim gives you the lowdown on the most important numbers to look at when choosing a stock.
Or if you fancy your hand at trading, you should check out John C Burford’s videos. John writes MoneyWeek Trader, our free email on trading methods. He’s produced some easy-to-grasp videos that explain all those odd charting terms you may have heard, such as Elliott waves, Fibonacci, and plain old ‘tramlines’.
They’re a fantastic source of information – short and sweet and easy to understand. So if you haven’t already given them a shot, take some time over Christmas to do so.
• I couldn’t let the last round-up of the year go buy without mentioning house prices. My colleague Merryn Somerset Webb went head-to-head with TV presenter Kirstie Allsopp on Radio 4’s Today programme earlier in the week. They were discussing the Financial Services Authority’s new proposals for the mortgage market.
It was a fascinating listen. Kirstie’s apparent view that the only sensible way to save for your retirement was via your home spoke volumes about the mindset that still prevails when it comes to property in this country. And there is no doubt in my mind that a big part of that is down to the way property is hugely tax-advantaged compared to other ways to invest. If you haven’t heard it, you should give it a listen.
But anyway, Merryn gave us her wider views on her blog after their conversation. The short version is that the new rules are sensible, but don’t matter, because banks are too scared to lend anyway. Meanwhile, lots of people are massively overstretched, even at current levels of interest rates. With unemployment rising, it’s not going to be pretty.
As usual, we got lots of comments. Rob reckons that the only way to push prices down in the UK “would be to introduce taxes on second and multiple homes, but that will never happen as the vested interests have too much political power”. But, said ‘it’s a con’, he’s forgetting about interest rates. Given that they are at an all-time low of 0.5%, “they are CERTAIN to go up”. Clive on the other hand doesn’t think house prices are necessarily overpriced where they are. After all, with more women working, perhaps the “3+1 salary formula” is no longer relevant.
Read the piece, listen to the clip, and Merryn gave us her wider views on her blog.
• I always make hugely over-optimistic plans for what I’m going to do with my time around Christmas. I’ve got a week off stretching ahead of me, and a load of reading to catch up on.
By the side of my bed, there’s Debt: The First 5,000 Years by David Graeber, which promises to be a fascinating lesson in why everything we think we know about money is wrong. Then there are a couple of books on the mechanics of currency trading (my spread betting adventures continue – my big bet of the moment is that the US dollar is set to strengthen against the yen).
On top of that, ever since I finally succumbed to buying e-books, there’s all the stuff on my iPad. I’ll never get through it all, but I’ll have fun trying.
To hear about other bits and pieces on the internet that have amused us or made us think, sign up for our Twitter feeds – we’ve listed them below.
Have a great weekend!
• MoneyWeek
• Merryn Somerset Webb
• John Stepek
• Tim Bennett
• James McKeigue
• David Stevenson
• This article is taken from the free investment email Money Morning. Sign up to Money Morning here .