A time to reap, a time to go
Timing can seriously affect your wealth
Stockbrokers have a saying – Sell in May and go away. And new research seems to show they are right. Although stockmarket investments are for the long-term, investing just in the best six months of the year can be good for your wealth. For the last fifty years if you had put your money in shares on 1 November and taken it out on 30 April you would have enjoyed a gain each year on average of 10%. But if you had picked the other six months, invested on 1 May and sold on 31 October you would have lost an average of 1% a year. All these figures are without dealing costs and take no account of dividends but they do show an annual cycle in the price of shares which is very interesting. David Schwartz, the stockmarket historian who has done the analysis, says the results for the last twenty years of the 20th century are even more remarkable. That was the long ‘bull’ market when shares generally only went one way – up. But not on this six month cycle.
"In the greatest bull market of all recorded history you would have not made money by investing in the bad six months." He illustrates it with his graph.
It shows that in the twenty November to April periods (blue in the graph) from 1980 to 1999 share prices they rose 19 times and fell just once. But in the 20 May to October periods (shown in red) from 1981 to 2000 share rose ten times and fell ten times. On average your money earned a fraction under 12% a year if you invested from November to April and just about zero (0.23% a year) if you invested from May to October. David Schwartz says "You would have done better to put your money in shares each year from November to April and then kept it under the bed for the next six months."
Of course, practical investment advice is always to leave money in the stockmarket for the long term – twenty years or more. But David’s new analysis gives us food for thought about the best time to put it in – and take it out.
Losing at cards
"I don’t borrow on credit cards because it’s too expensive" – in ten words
Matt Barrett ensured his immortality in the Gallery of Corporate Gaffes. It was
not what he said – which is true enough – but who said it. He is Chief Executive
of Barclays Bank, owners of Britain’s oldest and biggest credit card provider
Barclaycard. The biggest group of its customers pay 14.9 per cent on their
outstanding balance and most of the rest of its 9 million cardholders are
charged 17.9 per cent or more.
Its highest rate is 24.9% a year. In other words Barclays earns £249 a year on every £1000 these customers borrow. So it is no surprise that Barclaycard contributed profits of £628 million last year to the bank’s £3.2 billion total – and helped provide Mr Barrett’s £1.7 million pay last year.
Mr Barrett’s off the cuff remark was made to MPs on the Treasury Select Committee. They were looking into why credit card interest rates are still typically around 17% or more when the Bank of England has halved interest rates over five years to a 48 year low of 3.5% a year.
And he was right that long-term borrowing on a credit card is very expensive and should be avoided. But short-term borrowing can be free. There are more than 30 cards that offer zero percent interest on everything you spend for six months. So you can do your Christmas shopping and pay off the cost by June next year without it costing you a penny. And if you do want to borrow longer term, then pick one of the really low rate cards such as Northern Rock (7.8%) or cahoot (8%). Or get a bank loan. With Northern Rock you can borrow £1000 or more at 6% over one to ten years.
About half of all credit card users pay their balance in full each month so they do not need to worry about interest rates. Instead, they should get a money back card which gives back a percentage of everything they spend. Half a percent cash back is easy to get, several cards offer it. Currently better is More Th<n, part of Royal and Sun Alliance, which allows you to choose a card with 0.8% cashback, that's eight pounds for every £1000 you spend. Nationwide Building Society Cash Reward visa card pays 1 per cent for six months and 0.5 per cent after that. And Leeds & Holbeck Mastercard pays 1% on the first £2000 spent in a year and half a percent after that.
All these deals can seem very complex. But new rules starting soon might help. From March 2004 all card providers will have to provide a ‘Summary Box’ setting out the rate of interest, special deals, and extra charges in a common format so you can compare cards more easily.
Mr Barrett has now written to staff at Barclaycard to ‘clarify’ his remarks. But some customers have already taken direct action – cutting up their card and returning it personally to him.
More information www.moneyfacts.co.uk
FLIGHTS OF FANCY
On October 21st Concorde made its last 3½ hour flight to New
York. Each return trip cost £8230. What can its regular passengers do now to fly
in luxury? For just half that they can fly to New York at subsonic speeds –
seven hours – but in the luxury of Virgin Upper Class where a fully flexible
return ticket will cost you £4128.90. You get limousines all round, special
check-in, and on-board a private leather armchair that converts to a bed – you
are even given a sleepsuit.
Alternatively you could hire a plane. You need a Falcon or Challenger jet to cross the Atlantic and that will cost around £55,000 return with a couple of nights in New York. A Gulfstream 4 will cost closer to £70,000. But you could split the cost with friends – the planes will seat 10 to 14, though fewer if you want to stretch out and sleep. And although flight times are much the same as scheduled services – around seven hours each way – Gavin Copus of Air Charter Services says it is still quicker all round. "Check in times can be 20 minutes and there are no delays. You can also use smaller airports that may be closer to where you are and are generally less congested than Heathrow or JFK." ACS will even hire you a Boeing 737 – starting around £200,000.
Armchair investors
You may not have the money to buy the Georgian armchair made in 1760 in hard
Cuban mahogany which Sotheby’s sold for £386,400 on October 14th, but
investments that you can sit on and eat off are the most useful of all. Fine
English furniture has proved both a beautiful and a good investment over the
last forty years.
John Bly is well-known to antique enthusiasts for his television and radio appearances. His antique furniture business in London’s St James’s district has been in the family for five generations his records show just how good furniture is. On 26 August 1961 a customer bought nine items from John’s father for £348-8s-0d. Twenty years later the same items would have cost her £5445 and today the price would be £42,835. That is a compound growth rate of 12.78% a year over 40 years — not a bad return.
John sells furniture because he and his customers love it. But he also told Saga Magazine it is a good investment.
"Authenticated antique English furniture is the only furniture in the world which is earning money while you use it and enjoy it. There is a finite supply and an infinite demand. You are covered by law against mis-description but any dealer who is selling you an item at a fair price will be glad to give you your money back. Buying antique furniture is an emotional journey, you have to trust the person you buy from as well as what you are buying."
His figures are broadly confirmed by the Antique Furniture Price Index published by the Antique Collectors Club. Despite a slight fall in 2002, the index still shows that furniture prices have grown on average by 11% a year since 1968.
Pensions rise
The state pension will go up in line with the rate of inflation in September
which was 2.8%. That means the full pension paid on your own contributions will
rise by £2.20 from £77.45 to £79.65 and the married woman’s pension – paid on a
husband’s contributions – will go up by £1.30 a week from £46.35 to £47.65.
Pension credit is linked to earnings, not prices and is expected to go up by 3.3%, the rise in earnings in the three months to July 2003. If so that will push the guarantee credit for a single person up from £102.10 to £105.50 and from £155.80 to £160.95 for a couple. Some pension credit will be paid to a single person with an income up to £144, or £211 for a couple. These amounts are minimum estimates subject to confirmation – the Government may decide to be more generous.
December 2003
e-mail Paul Lewis on paul@paullewis.co.uk