Finance | What would you do?
The slogan for this week’s national lottery draw here in the UK is – what would you do? What would you do if you won £4,000,000 on the lottery? Would you buy a lots of food and drinks and have a party to celebrate? This week the British government again pumped 50 billion into the economy, affectively devaluing money again. This will probably cause inflation over the next year of around 5% devaluing £4,000,000 by around £200,000! Michael Winner once described having £3,000,000 as being comfortable; now we find with £4,000,000 you lose £4,000 a week as your money is devalued!
I would obviously invest the £4,000,000 if I won it. Yes, I have a ticket! What could we invest it in, though? I read this week that gilts, government bonds have been giving a good return and shares have given a loss over the past tens years. Bank accounts pay less than inflation and property values have been dropping.
On the London stock market shares appear to be cheap some that were selling for pounds before the recession are now selling for pence. Some of these companies won’t survive the recession though; especially those in retail. What companies will do well? Those in essentials like food and energy? Bus companies could do well providing transport for the London Olympics.
Shares or Bonds?
Shares are very risky and Government bonds have been giving a good return. Let’s say you bought bonds at nominal value of £100 when they were paying a 5% coupon. The interest rates drop to virtually nothing and those £100 bonds sell at a premium on the bond markets. But what happens if inflation takes off and interest rates go to 10% or more as we have seen in the past? The prices of those bonds would plummet and you would lose a fortune. Not good!
How about property? Some property appears to be cheap now. Demand has dropped for property at the lower end of the market and in areas in the North of England. High end property in the wealthy south east doesn’t seem such a good investment though. How about commercial property? Shops and offices could be a good investment in areas where there is investment. Buy a shop or office next to the new Tesco perhaps?
Gold has been doing well, maybe it would be a good idea to buy gold bullion out of our lottery winnings? That is bound to go up in price if money is being devalued yet again?
We can’t really look at investments in isolation. We have to try to predict the future. Bonds do well if interest rates drop, shares do better is interest rates go up. Property appears to do well when there is prosperity and low interest rates. Gold does well when people are panicking and we are headed into a depression. We also have to look at supply and demand and whether diversification will help us invest more safely.
I think shares now look cheap but risky and so maybe buying shares on the cheap but now putting all out eggs into one basket and spreading the risk across many companies would be a good idea? I could put some into gold bullion just in case the worst happens. It would be handy to put a little into property too, especially low end housing or commercial property that has prospects. Would you invest in bonds? I think inflation will take off eventually and so indexed linked bonds might be tempting but not bonds whose values will drop like the proverbial brick when interest rise rise.
Winning the lottery would bring problems and so what would you do? You could of course, just spend it all! I would probably spend some and invest some. If you decided to spend £1,000,000 buying luxuries or giving to charity, you would still have £3,000,000 to invest. Would I buy a mansion and move somewhere posh? No, I’m quite happy here. I might buy a new camera, I like my photography. I would even consider a new car. I would definitely spend money improving the community I live in.
This week was the anniversary of Charles Dickens‘s birth who wrote ‘Great Expectations’; a novel about a boy who is summoned to the office of a lawyer to be told he had a benefactor and ‘great expectations’. He goes to London and is given an allowance and he becomes a ‘gentleman’. I’ve always liked that book and becoming a benefactor, of some sort, would appeal to me. What would you do? Would you give some to charity? Which charity? People in overseas countries who are living in abject poverty or does charity begin at home? I once paid for a water filter for an African village and I wasn’t rich at the time and so I don’t think of would ignore the plight of the hungry now. Would I favour cute little bunny rabbits or lost kittens over the plight of the homeless and hungry? Probably not. Would you rather give to animal charities?