Three simple suggestions for savers


Published on Jan 18, 2016
When stock markets take a dip, long-term investors shouldn’t lose heart. This week I revisit three of the key building blocks of successful saving.

What can past market crashes teach us about the current one?

The markets have largely recovered since the March selloff, but most would agree we're not out of the woods yet. The COVID-19 pandemic isn't close to being over, so it seems that volatility is here to stay, at least until the pandemic becomes less severe. Q2 2020 hedge fund letters, conferences and more At the Read More


0:11this week three simple suggestions for savers where the star 2016 let’s think
0:18about ways we can boost the amount that we say so what are we fighting for a
0:23quick reminder very quick we all saving basically over three pages of people TV
0:26is about official yes it’s really important that you structure your saving
0:31and investing according to when you might need the money back so over the
0:35short term holidays treats yes yes yes but more importantly we do need that
0:40rainy day fund six months of salary let’s say that aside for emergencies
0:44active gold people living in the north of England all about land at the moment
0:48and or redundancy and or illness that’s important but that’s not by name in
0:54general store at the start of the story
0:56what about the medium to hanging by the house deposit I gonna pay for that
0:59wedding what do you all for your children’s
1:02gonna pay for that new car just use a card example of a big asset you might
1:07need to pay for goods and capital together to do that and then there’s no
1:10longer not to be forgotten as the state cut back the cost of children’s
1:16education retirement and long-term care and the costs of these rising all the
1:26time
1:26fairly frightening right so saving without thinking about three periods now
1:31in one video let’s just take three messages my three suggestions in this
1:35video don’t feel too much cash markets may be volatile nonetheless be careful
1:40how much of your wealth cash number to reinvest dividend income now I’m not
1:47suggesting that the only two assets you can invest in cash and equities you
1:52might be thinking that just give me a few points here there are government
1:56IOU’s yes they can be useful in the short to medium term and this property
2:00but I gotta be honest you know the videos I deal with my that as an asset
2:04class I would say best days behind at the time being and George Osborne is
2:09making it more and more difficult to make money so that’s leave that to the
2:13professionals in the retail experts say
2:16and focus on ways to maximize the returns from equities and one way of
2:22doing that is to use up till 2015 2016 I surrounds well thats not hand over more
2:28than we need to tax man and if you combine these two together you get a
2:33potentially quite powerful combination in terms of building your medium to
2:38long-term pot now briefly what’s wrong with cash
2:43the International Monetary Fund know that s not famous beginning it big
2:48economic predictions right in my view but nonetheless influential says cash is
2:52a convenient medium of exchange yet the stuff you wanna get done now and in the
2:58future
2:59sure getting transactions done is a useful union accounts we’re keeping
3:02score it’s a way of pricing different items in one unit you like but is it a
3:09store of value in the short term perhaps in the long term we were certainly not
3:15as a message of put out before they come out of my sight of an angle overalls
3:19requestion have been thrown by a few people think and you keep going on about
3:23purchasing power
3:24the fact that cash doesn’t maintain your personal foul what do you mean hopefully
3:28this will sell it goes beyond offshore imagine you had one pound in 1985 or
3:38that by well roughly put it this way
3:41roughly three loads of sliced bread now with me my you one question mark the
3:48date from its very reliable source government statistics but there’s the
3:52point that found has lost load unload approaching Powell why the calls the
3:58price the slides Lopez gone up and therefore inflation is done its work in
4:02terms of eroding what that power by looks like the same pound your pocket 95
4:07take a pocket now playing pound buys less that’s what I mean by erosion of
4:13your purchasing power parity specular freaky like 35 PHD’s call it in 1985
4:20not so much now ok diesel per litre diesel that’s what you need
4:261695 one-pound 49 hours yet .
4:30pound is not even buying a litre where’s it bought several of them in 1985 now
4:35carry his own detached house 45,000 joined rebounds than two hundred and
4:40seventy three thousand pounds now we do you believe in the idea of trying to own
4:45your own home there are emotional and financial tax advantages to doing so but
4:50look at the way that has moved and got appointed lawyer something close to my
4:55heart
4:5573 be there in three pounds 35 now and in my local quite a bit more than that
5:01this is the point one pound would by 95 is very different
5:08by now when you hear me talk about ocean of purchasing power sheila Grant
5:13expression that’s what I’m getting at
5:14ok we’ll see this another way by using you had under pounds and you were
5:20looking at a twenty five-year period and you were looking at three different
5:24rates of inflation because you don’t know what inflation gonna be inflation
5:27is the right which goods and services like carrot bread are changing in price
5:31but you know what you don’t get a future but imagine that a hundred pounds being
5:37eroded over 25 years at 2% inflation 5% 10% or so what kind of sluggish right UK
5:45long-term average for the save the past 50 years roughly speaking and what would
5:52that look like over 25 years just a two-percent inflation right people to
5:56percent so much is it just a two-percent inflation rate reduces a hundred pounds
6:00two more like sixty pounds of 5% shreds it much much further and 10% down to a
6:11very very small amount in purchasing power so that’s the kind of damage
6:16inflation could do you think he will the moment I’m not much inflation and we saw
6:20who worrying well just bear in mind that is true we are hovering around zero
6:25the moment that’s unusual the UK is touring the past is no guide future but
6:31nonetheless we’ve seen much much higher rates inflation and there are plenty of
6:36economist speculating that sooner or later we may see it return so we thought
6:42that is number one number two why reinvesting comes as a senior allocating
6:46a portion of your money to shares not cash one way you can seriously dent the
6:52return you get from equities and it does do it and people are shocked by is to
6:56keep spending the income now discerned
6:58you may need to draw for income in retirement for example been the main
7:03make sure you reinvested give you one example
7:07100 the power of dividends now let’s again compared 935 to now let’s compare
7:13the Footsie 100 index capital only 100 total return of capital and reinvested
7:21dividends how’s it look alright while these numbers won’t mean much these are
7:26the levels of the index then now ok but the numbers are put up next we’ll me
7:31will make it more obvious point and make it so the index has risen about 1412
7:376205 on capitol only basis between those points on a total return basis from 356
7:45up to 497 lots of numbers what one might wanna say what is the point that a four
7:52and a half times increase on capitol only basis compared to a fourteen times
7:57increase on a total return basis and thought you 100 is by no means the most
8:02impressive example of reinvested into work but it is the pussy 250 that gap
8:08will be massive about it for you all share the point to make here is that
8:13reinvested dividends have a powerful effect on your overall total return
8:17worth remembering that why bother with a nicer I’ll be returning to this topic in
8:24more detail
8:24nearing the end of personal financial year which ends on April
8:29but for now why shelter investments then I said well first of all they’re getting
8:34better and better and better the government seems to like them
8:37keeps changing them in your favor the annual Lions keeps rising
8:42person a little over 15,000 pounds you can switch your investments around in
8:48cash and shares for example and you can allocate them in any proportion you on
8:52the annual total each tax year
8:55withdrawals are allowed any time zone like say thank you to think more
9:00carefully about when you need the money back with ice as you can in theory take
9:04it out at any time if you do you lose the ability to then take future taxpayer
9:10this on the same capitol there’s complete flexibility about how you
9:15allocate your money within the ice and these days a spouse can even inherit
9:19attacks advanced use which is any indication relatively recently now
9:25couple about the fact that you can put more and more things inside a nicer
9:28point are returned to the flexibility is looking pretty good in terms of I said
9:33power just give you a quick reminder if you were to able to put a thousand
9:39pounds monthly into a nice way would you be after 15 years at the FCI is
9:46considered sort of low rate of growth of meddling rate of growth and a high rate
9:51of growth no way to guarantee by the way of just for illustrative well you have
9:55paid in thousand pounds a month okay times 12 give you a year times fifteen
10:01hundred and eighty thousand pounds in all three cases but if you were to
10:06achieve tax-free growth before charges admittedly but tax-free growth of 2% 5%
10:118% how much would you add on top for effectively doing very little they also
10:17raised a week in the cases two percent growth a decent chunk 5 percent and a
10:23substantial chunk if you manage to get growth and no one knows for sure which
10:27of those growth rates that achieve point is the white stuff is more or less for
10:34free as a free lunch
10:36markets but compounding tax-free growth adds substantially to the value of your
10:41account taking it
10:42210,000 on the left 266 in the middle and three hundred and forty on the right
10:49off the base of a hundred nature and now you like to know more
10:55point I just made and some other tips to carry through 2016 please do you have a
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