Savings and investment for a time of uncertainty

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In March 2013, we held a couple of Transition Cafe nights on "Savings and investment for an uncertain future", also titled "How secure is your financial future?". We discussed a variety of ways of saving for the future, listed below. If you'd like to be included in an e-mail discussion group for this topic, sign up here. To get more things listed on this page, or for anything else related to this initiative, contact David Carter.

Important note: nothing on this page has been written by anyone with any finance-related qualifications, so do your own research before taking action!


The big picture

  • BBC Radio recently interviewed investor Jeremy Grantham on how he expects the global economy to change over coming decades. These graphs illustrate what he's talking about. He covers all the major bases: peak everything, the rise of India and China, climate change, population, renewable energy, sustainable farming, and more. Also check his article "The Race of our Lives" in this newsletter.
  • The unremitting deflationary pessimism of The Automatic Earth, one of whose hosts, Nicole Foss, has given talks to Transition Cambridge in the past, is worth taking seriously.
  • The Financial Sense Newshour podcast explores the same issues, but with a lot of focus on investing in precious metals as a shelter from the hyperinflation they expect to result eventually from government debt and money printing.
  • Inside Job: full-length documentary on the 2008 financial crash and how nothing effective has done about its causes since then.
  • Debt, deficits and modern monetary theory, by economics professor Bill Mitchell: maybe public debt is not so dangerous after all? Here's Paul Krugman's view on the topic, with a wider picture of the debate here (Steve Keen is involved too, always worth paying attention to). However, both sides in this debate seem to assume that growth is the solution; the Automatic Earth has a good critique.
  • Although not specifically investment-related, the Archdruid Report is a great source for understanding the transition our world is going through, from a long-term historical perspective.

Banking

Some general remarks:

  • Be aware that saving with any bank that pays less interest than the rate of inflation (currently all of them?) is a way to lose money in the long term.
  • If you have money in a UK bank and it goes under, the government guarantees your savings up to 85,000. Whether the government would be able to honour that commitment in the event of a really large-scale crash is worth pondering, though.
  • If you have any credit card debt, you should almost certainly use any spare money to pay it off, as the interest you are paying will be way higher than any investment returns.
  • There is also an argument for paying off your mortgage as fast as you can. Even if you're on a low rate now, what does the long term hold?

Mainstream investment vehicles

  • Pensions. Advantages: you don't pay tax on what you invest or on increases in its value; and your employer may match the funds. Disadvantages: pension funds take a cut of typically 1% per year, which really mounts up over the years, especially when returns are poor. When it's time to cash it in, you either have to spend most of it on an annuity, which will probably pay a lousy rate, or continue to invest it and draw down the income, which may pay more but be riskier. And the income is taxable in both cases. Also, this report by some researchers at Anglia Ruskin suggests the outlook for pension funds is not good to say the least. See also the New Scientist summary.
  • ISAs. You can invest several thousand per year in cash and/or stocks-and-shares ISAs, and not pay tax on the returns.

For ethical options for lending of this kind, as well as mortgages and insurance:


Social lending

Traditionally, savers have put their money in banks, who pay a guaranteed rate of interest and then lend the money out (several times over) to individuals and businesses. Social lending is a way to cut the banks out of this arrangement by lending your money directly for an agreed interest rate (much better than the banks offer savers) for up to about five years. Lending through the sites listed below offers you a way to reduce the risks involved in this: borrowers are rated for creditworthiness, and you can lend small amounts to a large number of them, so that a few defaults will not matter too much.

Crowdfunding is a somewhat different concept. Here, you are investing in startups in the hope they will give you a good return if they succeed (think Dragon's Den). See, for example, Crowdcube.

You can also do some serious good with your money by lending it out to projects in the developing world. Note that this is not a way to make your money grow: the interest rate is low or zero, and your money is usually not guaranteed. Here are some options:

  • Shared Interest
  • Lend With Care
  • Kiva (note: US-based, so there is an exchange-rate risk)
  • Allia, a charitable organisation that creates opportunities for people to invest their money for social benefit.

Commodities

Commodity prices (oil, food, gold, other materials) have on average tripled in price in the last decade after many years of relative decline. This is partly because demand has been growing relative to supply, and partly because of the loss of confidence in paper money caused by government indebtedness and money printing, especially since the 2008 crash. We all need to eat, and even if we don't drive, the oil price feeds into the cost of almost everything.

Buying precious metals is therefore worth considering as a way to preserve value. Some points to bear in mind:

  • Gold (and other) mining can cause major environmental damage and exacerbate conflicts. On the other hand, each year's gold mining only adds about 2% to the total that exists above ground, so much of what you might buy could have been mined long ago.
  • If you buy silver, you have to pay VAT. With gold, you don't, but who knows what cut the government might demand when you want to sell it years from now?
  • Where to store your gold? If it's in a vault miles away from you, what happens if global communications are disrupted?
  • An interesting observation from a (subscriber-only) Money Week article in April 2013, just after a sudden 15% drop in the gold price for which there was no obvious single cause: "We'd argue that what gold really hedges against is a drop in faith in the financial system, and central banks in particular...And right now, strange as it may seem, faith in central bankers is coming back. At the heart of all this is a growing conviction that quantitative easing [money printing] works." Do you share that faith?
  • If you want to go ahead: Google search on how to buy gold in the UK.

Some investment opportunities

In no particular order; various people in Transition Cambridge have suggested these, but do your own research if you're thinking of following them up.

  • Energy Saving Co-operative: "Organisation aims to raise up to 700,000, promising early investors a return of around six per cent".
  • Osney Lock Hydro: "an investment opportunity that aims to generate benefits that last a lifetime". More details in Anna's message to the list.
  • Reach Solar Farm. James says: "it's not as far forward as the Osney Hydro scheme, but definitely worth watching as a potential local investment."

Other ideas

If anyone would like to flesh any of these out so they can be included in one of the sections above, please do, and email the results to David.

  • Sustainable timber project in Guyana. More info here and here.
  • Local currencies
  • Microgenius
  • Renewable energy
  • Wind coops/solar energy coops
  • Buying land together
  • Local investment versus stock market
  • Learning skills in case the money system flops (Greeniversity = free way to skill up)
  • Local start-ups/coops
  • How do you hear about local companies that need your investment e.g. wind turbines? Would be useful to create a resource page for this for Cambridge
  • Good to diversify your investments whatever you do

Description of cafe night: Thursday 7th March: Transition Cafe: How secure is your financial future?
CB1 Cafe, 32 Mill Road, Cambridge 19:30-21:00

Does it any longer make sense to save for your retirement in the current economic climate? If so, what kinds of sustainable savings or investments will offer you the best returns? Come along to discuss these issues in the context of peak oil and the global financial climate, and share ways to take a positive look at managing your money. We'll also look at setting up further events to explore the practical options in more detail with a view to enabling us all to make informed decisions.