The Lemon Fool

I think hyper-inflation is defined as in excess of 50% month (Investopedia), so I would guess a few more helicopters would be required yet.

Sure, I meant excessive inflation (substantially more than the 2% the BoE considers ideal).

The term hyper-inflation is being used a lot these days, possibly with different meanings and definitions.

While I invested in VHYL, FTSE 100, and VERX (dev. Europe ex-UK), I am indecisive about EM and Pacific shares. I know very little about the monetary policies of these countries and, especially for China, I am wary of government-controlled businesses and markets...

stevensfo wrote: Only years later did my dad explain how his father had messed up his entire retirement through shunning the stockmarket and relying on saving accounts. These memories returned when I discovered TMF in 1998 and then 2008 when the message of 'the world doesn't stop at Dover' and diversification was drummed into me. I am holding back a little on reinvesting and allowing cash to rise while waiting to see what happens, though I can't see inflation taking off anytime soon. These aren't the 70s.



Steve

Inflation doesn't need to be hyper to affect retirement plans. A lot of pensions are capped at either rpm/cpi or 5%/3%, whichever is the lower. So a few years of the kind of inflation we saw around 1990 would be damaging, let alone a recurrence of 70's style inflation.

I did wonder about this for a while recently when I considered taking the biggest possible lump sum from my DB pension and investing it in equities. In the end I didn't take this option but still think it could have merit if inflation does take off.

BoE

Steveam wrote:I’m quite sure the scars of high inflation and/or currency devaluations still scar my thinking and financial behaviour.

Same here.

One thing that strikes me is that all our politicians in power are too young (and too wealthy) to have personally felt the pain caused by inflation. So having only learned about it from books and uni, they have less fear of inflation than you or I. This means there will be a temptation to let some inflation take place to 'painlessly' inflate away some of the govt borrowing.

Set against this, the size of the debt means massive interest payments if base rates are allowed to creep up, so base rates HAVE to be kept down to avoid economic armageddon. So it looks to me as though we are in for a combination of inflation and a reluctance to fight it with higher base rates in the long term, while our politicians re-learn the lessons of the 70s.

Roy Jenkins, then Labour, in 1968 opted to apply a retrospective tax that bolstered the top rate tax to 130% (add/earn another Pound and owe the taxman £1.30 was a great disincentive). The Beatles during the 1960's were singing Taxman, 19 for you, 1 for me ... in reflection of 95% tax rates. Little wonder that by the early/mid 1970's the country was in such a crisis and had to be bailed out by the IMF as much money had already flighted the country.

'Hit the rich' policies tend to see that money vaporise, such that it rolls down to average individuals having to fill the hole, or more like a quarry as the top 1% pay around a third of the total tax take so without that its a large gap to fill. Better would be to double or even treble the 1%. UK policies however have always been against protectionism, small UK upstarts that do well will more often end up abroad, in particular the US, great growth prospects secured for relatively little by the US, to the loss for the UK.

Fundamentally the core of the issue is a single factor, Parliament, that gifted sovereignty away, didn't want it back, where the government in power typically is there with just 20% of the population having voted for it. Should be reformed, but Parliament wouldn't permit such, and the population is so docile its unlikely to be forced.

Bubblesofearth wrote:

stevensfo wrote: Only years later did my dad explain how his father had messed up his entire retirement through shunning the stockmarket and relying on saving accounts. These memories returned when I discovered TMF in 1998 and then 2008 when the message of 'the world doesn't stop at Dover' and diversification was drummed into me. I am holding back a little on reinvesting and allowing cash to rise while waiting to see what happens, though I can't see inflation taking off anytime soon. These aren't the 70s.



Steve

Inflation doesn't need to be hyper to affect retirement plans. A lot of pensions are capped at either rpm/cpi or 5%/3%, whichever is the lower. So a few years of the kind of inflation we saw around 1990 would be damaging, let alone a recurrence of 70's style inflation.

I did wonder about this for a while recently when I considered taking the biggest possible lump sum from my DB pension and investing it in equities. In the end I didn't take this option but still think it could have merit if inflation does take off.

BoE

So very true! I'm a bit geeky in checking the ons gov site every month when the inflation figures are released and making a note of the CPI and RPI indices and the %, though I usually keep only the March and Sept figures to stop the list getting too long. It's quite illuminating, and quite scary to work out stuff like how inflation has affected the value of cash since we moved, started a new job, bought our car etc etc. It really shows how even a lowish rate like 2% can affect your assets after ten years.

I try to find the best fixed term rates for cash to mitigate all this, but, given the current rates offered, I'm wondering if I should simply do what an uncle did, and keep the cash in a well-hidden safe somewhere. But he lived in the days when you could walk down the road and buy a car for 10K in cash, no problem. These days, I'd probably be arrested for having that much cash on me.

Unless I was on the list of governmental PPE suppliers sourcing Bazooka Joe bubble gum, of course.

Steve

It isn't widely circulated but I believe the figure for notification is under 5 grand for cash purchases / contributions towards a car.
Whether it happens or not.....

There has been loads of inflation in recent years if you are asset light.
Far less if you are asset heavy.
At least that is how it seems if you ask around.

I think what is meant here is 'the wrong sort of inflation'.

W.

It may help to remind our younger readers that the standard rate was 8/6d in the pound, with lower rates, allowances for marriage and children, and tax relief on mortgage interest, but also Schedule A tax on your property. Also that cars could be bought for as little as £500 for the original MiniMinor or Austin 7 of 1958.

TJH

Wuffle wrote:It isn't widely circulated but I believe the figure for notification is under 5 grand for cash purchases / contributions towards a car.
Whether it happens or not.....

Notified to whom for what? That evidently has never circulated as far as me, as I have never done that.

tjh290633 wrote:It may help to remind our younger readers that the standard rate was 8/6d in the pound, with lower rates, allowances for marriage and children, and tax relief on mortgage interest, but also Schedule A tax on your property. Also that cars could be bought for as little as £500 for the original MiniMinor or Austin 7 of 1958.

So 42.5% basic rate?

I recall when I started work in 1975 being very disappointed to see that my rate of tax was 35%. That is not much short of what we consider to be higher-rate tax these days, except that I was just out of University. There was of course NI as well, albeit at lower rates than today. And something called "Superannuation" which I assume was some kind of mandatory pension thing, which I am fairly sure I never got any credit for.

I recall my father buying a car for around £1,000 in the late 1960s. A Triumph 2000 or some such.

Yes, the lower rates were 2/=, 4/= and 6/= as I recall, on very narrow bands. There was then supertax on income above about £2,000 if my memory serves me right.

My first new car in 1958 was a VW Beetle and cost about £850.

TJH

Lootman wrote:

tjh290633 wrote:It may help to remind our younger readers that the standard rate was 8/6d in the pound, with lower rates, allowances for marriage and children, and tax relief on mortgage interest, but also Schedule A tax on your property. Also that cars could be bought for as little as £500 for the original MiniMinor or Austin 7 of 1958.

So 42.5% basic rate?

I recall when I started work in 1975 being very disappointed to see that my rate of tax was 35%. That is not much short of what we consider to be higher-rate tax these days, except that I was just out of University. There was of course NI as well, albeit at lower rates than today. And something called "Superannuation" which I assume was some kind of mandatory pension thing, which I am fairly sure I never got any credit for.

I recall my father buying a car for around £1,000 in the late 1960s. A Triumph 2000 or some such.

Wuffle wrote:It isn't widely circulated but I believe the figure for notification is under 5 grand for cash purchases / contributions towards a car.
Whether it happens or not.....

W.

Well, my experience is from Italy but, only a few years ago, so I guess it was a Europe wide rule. If we ever withdrew more than 4000 euros in cash from the account in one day, they were obliged to inform the tax people who could, in theory, order a 'control' of our finances. Of course, anyone with two brain cells got around this by withdrawing cash over time and keeping a large buffer of cash at home.

Rather like the italian agreements with Switzerland that forced Swiss banks to impose a small charge (approx 40 euros/year) on all non-Swiss residents with accounts. During Berlusconi, I think. The only people it affects are the riffraff plebs with tiny amounts in their accounts, but it sounded good for the international press. All of Berlusconi's friends just laughed and continued to hide their loot there.

One law for us, another law for.... etc etc

Steve

Am not knowledgeable about investment but read somewhere a while ago (sorry can't remember where) that for many years higher dividend paying shares have been used as bond proxies so if interest rates rise then dividend paying shares could fall sharply, just like bonds.

But have also read elsewhere that they're viewed as 'value' shares protective in a higher inflation environment.

They're seems to be some contradiction. Is it possible that dividend paying shares could suffer a great sell off with just the mere hint of higher interest rates?

Would it be better to choose 'value' based not just on how high the dividend is but based on another measure of value (whether a dividend-paying or growth share)? The reason I ask is it seems a lot of folks elsewhere on the internet (not this forum) seem to assume anything paying a dividend must be 'value'.

Could anyone recommend a global value fund?

Thanks

langdale wrote:Could anyone recommend a global value fund?

Realised my question not good.

Most value fund managers just stick to value whatever the economic situation. Likewise growth managers e.g. James Anderson doesn't seem to be moving out of growth even a little bit and probably never will?

Best managers are those who are willing to move between the two when they think it will improve returns?

langdale wrote:

langdale wrote:Could anyone recommend a global value fund?

Realised my question not good.

Most value fund managers just stick to value whatever the economic situation. Likewise growth managers e.g. James Anderson doesn't seem to be moving out of growth even a little bit and probably never will?

Best managers are those who are willing to move between the two when they think it will improve returns?

"Best" for many is having an understanding of the underlying aims of the fund, and that these won't change. With that in place it is down to the customers to decide how they allocate their investment, and switch if their objectives change. So if you like value now, but seek growth at some time in the future, because you think the investment world has changed, your priorities have changed, or any other reason, you can rebalance.

What is less "good" is investors buying a value fund, say, assuming that the manager and fund will be continuing as such, only to discover the manager has changed the investment model.

If you are happy to leave all to a manager to make such broad allocation decisions, such funds are available, but there are categories of UK, Value, Japan, Small Companies, High Yield etc. for a reason.

Thanks dealtn for your thoughts.

Difficulty I have is not knowing how much to allocate to growth and how much to value.

E.g choosing global ITs. 50% in a growth IT and 50% in value, or some other proportion?

And if change it, e.g. moving from growth to more value, then would be timing the market in that respect. I'd rather have a manager do that for me.

Langdale,

can i suggest you have a read of all things 'Fundsmith' and see if it meets what you are trying to achieve.

langdale wrote:Am not knowledgeable about investment but read somewhere a while ago (sorry can't remember where) that for many years higher dividend paying shares have been used as bond proxies so if interest rates rise then dividend paying shares could fall sharply, just like bonds.

But have also read elsewhere that they're viewed as 'value' shares protective in a higher inflation environment.

They're seems to be some contradiction. Is it possible that dividend paying shares could suffer a great sell off with just the mere hint of higher interest rates?

Would it be better to choose 'value' based not just on how high the dividend is but based on another measure of value (whether a dividend-paying or growth share)? The reason I ask is it seems a lot of folks elsewhere on the internet (not this forum) seem to assume anything paying a dividend must be 'value'.

Could anyone recommend a global value fund?

Thanks

You could have a look at AVI Global Trust (ticker AGT). I keep getting tempted, but haven't jumped so far. Yield is: 1.83%

Objective
To achieve capital growth through a focused portfolio of investments, particularly in companies whose share prices stand at a discount to estimated underlying NAV. Investments are principally in companies listed on recognised stock exchanges in the UK and/or overseas.

https://www.hl.co.uk/shares/shares-sear ... lc-ord-10p

Thanks flyer61 and richfool for your suggestions.

Value has done well over the last month but growth much better over the last year...

https://www.trustnet.com/news/7467135/rising-bond-yields-hit-2020s-best-global-equity-funds-hardest

langdale wrote:Could anyone recommend a global value fund?

As I mentioned above, I feel that VHYL (a passive world-wide high dividend ETF from Vanguard) could provide broad exposure to value stock without having to pay a fund manager.

You get around 1500 large and medium companies with above-average dividends but weighted by capitalization.

VHYL could be seen as value but there is also IWVL iShares World Value.

I am not convinced that ETFs that aim to track yield or value work very well. The mechanical rules often lead to less than ideal portfolios and if you compare the UK Dividend Factor funds with UK Equity Income Investment Trusts over the years you will find the trusts do far better.

We don’t really have a lot of data to say that value funds will do any better than a market tracker in an inflationary environment. The last time we had serious inflation was in the 70’s and early 80’s and whilst we know what happened then, if we had inflation now , the same tactics may not be useful.

A simple model is to assume a two thirds take-home out of a £24K average wage (16K net) has on average half available to be spent on a mortgage. At 2% rates and 8K available that opens up a interest only repayment mortgage of £400K home value in the average case.

If interest rates rise to 4% the same 8K of available funds buys a £200K mortgage/home value. i.e. home values, stocks and long dated bonds might all halve in price if/when interest rates rise from 2% to 4%. You can enter similar figures into a bond price calculator i.e. 2% coupon, 100 year (indefinite) term, 4% yield and see the 50% lower price,

Home + imputed rent = stock + dividends ... which in turn is similar to long dated bonds (some stocks are more bond-like than some bonds). Each of stocks/bonds/property prices are reflective of interest rates.

Cash, even earning nothing could see its purchase power of stocks, property and/or bonds rise substantially and relatively quickly. If £100 in cash ends the year at £100 but home/stock/bond values had halved then that cash has doubled its purchase power of stock/property/bonds. All stock down from 100 to 50, 50/50 stock/cash down to 75, stock/cash worth 50% more than all stock, and all stock would require to earn (or have earned) 2%/year annualised more than 50/50 stock/cash in order to close that gap over a 20 year period. Which is the typical figure we see in practice, all stock having earned 6% real, 50/50 earned 4% real for instance since the 1980's across a period of broadly declining interest rates from very high to very low levels.

Back in the 1970's Robert Lichello devised a investment method he called "AIM" that in effect scales cash levels up and down, can at times be all-in (low/no cash), at other times might be 80% in cash. A rule driven 'Automatic Investment Method'. Buffett is up to over 30% cash nowadays, which for him is a lot, AIM I suspect at such low current yields would be significantly more into cash. Low/no inflation and hard cash stuffed under a mattress can be reasonable, if/when interest rates rise that could either then be deposited to pay a more decent interest rate, or be deployed to buy property/stocks/bonds in perhaps having seen its purchase power of those assets having doubled or maybe more.

But high, or low interest rates can persist ... maybe for decades. So what many opt for is a simple 50/50 choice. Compared to equity heavy 50/50 will lag over some periods, decline less over other periods, broadly do OK and be more consistent across time.

A retiree living in a 500K home with another 500K invested in a stock portfolio that is generating 4% dividends, 20K/year, may feel themselves to be a comfortable millionaire. But if/when mortgage interest rates rise to 4% from 2% levels and both their stocks and home values had halved, even though the portfolio may be paying 6% dividend, 250K home value, 250K stock value paying 6% is down 5K on income production, a 25% haircut ... perhaps at a time when inflation is also modest (so even lower in real terms). In contrast another who lived in a 250K home, had 250K in stock and 500K in cash might see their net wealth having dropped from 1M down to 750K. We're in a era where very low interest rates is having many with very high levels of cash reserves and where even accepting a small regular loss in real terms on that cash is seen as being acceptable given the potentially significant risk in other assets as/when interest rates/inflation rises.