there may be trouble ahead
Spoiler alert: If, this morning, you’re feeling all bright, bubbly and full of the joys of spring, please move on and don’t let this doom-laden financial missive spoil your day! Move along, nothing to see here. Furthermore, other opinions will be available from a bar-stool near you later this evening.
Researching one particular post often leads to another and the earlier one concerning cryptocurrencies lead me to start thinking generally, about more broadly based investments and specifically, whether our money could survive another major meltdown? As it transpires, about every ten-twelve years a financial crisis hits global markets and you don’t need me to remind you the last one happened in 2008. Uh oh. The IMF have publicly issued a warning wrt the stability of the global economy amid rising debt (individual, corporate and governmental) and slowing GDP growth. With debt in most developed countries back to pre-crisis levels are storm clouds gathering on the financial horizon?
As we learn each and every time to our increased cost, financial crises have very real, human consequences. Will your pension be thrashed? The value of your house fall through the floor? Could your company hit the buffers and you be shown the door? The bad news is current forecasts and predictions are very bleak indeed. The relative ‘party’ of the last decade (unprecedented share value, increased house prices, cheap money and seemingly unlimited quantitative easing) appears to be coming to an end. Remove these props to global growth, throw-in a trade-war or two with a dollop of inflation and a rise in interest rates and you have a recipe for very hard-baked cookies. The question this begs is what, if anything, can we do to protect ourselves?
Firstly, if you have a stock market-based pension scheme you may want to move into ‘protection’ mode and batten down the hatches. Dependent on how close you are to exercising this fund you could consider de-risking by shifting it away from shares and equities into cash and bonds. At the risk of doing a counter-Gordon Brown who sold all the country’s gold reserves at the very bottom of the market and sparked a recovery, perhaps even convert what you can into that one-traditional safe-harbour of the precious yellow metal, or maybe skew your share schemes to more environmental and ethical markets? Ask your IFA, pension advisor or HR rep to do so if you’re keen. If you’re still in your 20s or 30s there’s probably no need to do this as you’ve thirty years to play catch-up, but either way do remember to shift it back if/when the share outlook is better.
If you believe your job may be in jeopardy, then cut back on your outgoings asap and try and build-up an emergency rainy-day safety-net. Losing your job is the single biggest risk from a financial crisis, and it automatically makes getting another one even tougher, irrespective of your skills and marketability.
A lesson learned from 2007/8 is that banks, both retail and investment, can bite the bullet and fail. Currently, the UK’s Financial Services Compensation plan will protect the first £85,000 you may hold within each bank or building society so, if you’re lucky enough to be in this position, spread your financial favours around and try and hold eighty-five big ones in different, individual institutions. Mind, don’t forget that following the rush of recent mergers, banks can be part of the same institution. For example Lloyds, Halifax and Bank of Scotland are all part of Lloyds Banking Group and as such only one sum will be underwritten. The great news is that your premium bonds are save to the tune of 100% – good ol’ Ernie!
If you’re thinking of moving house or buying for the first time, bargain hard. Housing price forecasts are their gloomiest for years and Rightmove is predicting prices will flat line at best and fall by up to 3% at worst. Yes, there are some property hot-spots but choose them carefully. Additionally, if interest rates rise then fixed-term mortgages are obviously more-likely to give you piece-of-mind on monthly repayments.
On a separate but related note, and as a guy who admittedly sold all his tech stock the day after Tiny Hands was appointed POTUS (doh), I do now think the tech run has had its day. Faang (Facebook, Amazon, Apple, Netflix and Google) stocks are all down, Facebook by a whopping 40%, and the nail in the coffin has been the very visible disappointment of recent high-profile ‘unicorn’ IPOs, personified by the abject failure of the loss-making taxi app company, Uber. Looking to raise over eight billion dollars, they suffered the worst first day loss ever recorded and over £20bn was wiped out by day two of trading. Ouch. Whilst new CEO, Dara Khosrowshahi argues that its new areas of food delivery, bicycle hire and logistics provides long term growth prospects, Uber remains a rule-bending cab company that doesn’t make any money!
Yep, depressed, pessimistic soul that I’ve become I do think we’re all going to have to face the financial music and dance…
