Finance is all about promises. Every investment you hold assumes someone is going to give you something for it, sometime in the future.
In that sense, The Right Side is all about finding the most valuable promises on offer. Be it a return to outpace inflation, or a judgement on which promise may be worth the paper it’s written on. That’s how we, as individuals, can try to safeguard our future.
But there’s a wider issue here. And that is how, as a society, we can create a framework to make these financial promises work.
I don’t think there is a bigger issue facing this country. Right now we are standing at the precipice. Many of the privileges that the baby boomer generation enjoyed – easy credit, rising property prices, early retirement – have evaporated overnight. And there are many in this country who will now be forced to work well into their late sixties – slaves to a deeply dysfunctional financial system.
So what do we do? Well, we don’t panic. We just take matters into our own hands. We don’t leave ourselves at the mercy of fund managers or a grossly indebted government. We take immediate and decisive action to protect and grow our financial savings.
Today I want to point to three vitally important investments that will help you do that. These are the investments that I believe will help you stave off penury when you do finally decide to retire.
The old can’t retire and the young can’t work
It’s been 12 years since I left the City to concentrate on developing property and my beauty products business. And I have absolutely no plans to retire. As much as I enjoy spending so much time in the south of France, I can’t quite resign myself to a slower pace of life. That’s probably why I still write to you three times a week.
But many of those who are a little older than me – the boomer generation – would probably love to retire. The problem is that they can’t. Over the last ten years, baby boomers have been finding it difficult to remove themselves from the coal face.
This chart from The Economist tells the whole story...
Just look at the light blue line – there’s more and more over 65s in the workforce. But perhaps more worrying is the dark blue line – youngsters are increasingly frozen out of employment.
Though the chart doesn’t go back as far as 2001, that was the year that really marked the great divergence. I guess in no small part it was down to the millennium stock collapse. Suddenly, soon-to-be retirees didn’t feel their savings were quite as valuable as they once thought. And due to the meddling by the authorities, returns on annuities plummeted – and they continue to do so.
If you look closely at that light blue line, you’ll notice that it accelerates just after the 2008 collapse. Those financial promises clearly aren’t what they used to be!
And as for the young people frozen out of the jobs market, that’s surely criminal. There’s clearly something fundamentally wrong with the system. I mean, just look at some of the peripheral European countries at the moment. Youth unemployment is around 50%. If they become long-term unemployed, it could herald a major breakdown in those societies.
It’s not quite as dire a situation for the younger generations in this country. But I do think that the political policy to get half the population to university has cost our economy dearly. It’s not just the number of work hours lost, but it’s also created a lot of disillusioned graduates.
Don’t get me wrong. I firmly believe in a meritocratic society where anyone can work their way to the top. But why that should involve half the population going to university is a mystery to me.
Anyway, this is not a political newsletter. We need a solution. Our investments depend on it...
An exclusive report from The Right Side
A change in the system
To maintain some semblance of social cohesion, we clearly need to incentivise employers and the young into work. It’s crazy that an army of post 65 year-olds feel forced to continue working to help pay for a welfare system that keeps the young at home.
And taxation is where it starts.
As it stands, once you get to 65, your salary is no longer subject to National Insurance contributions (NICs). It makes sense. After all, if you’re entitled to draw a state pension – where’s the sense in continuing to pay into it?
But this effectively means that if you stay in work past 65, you get a pay rise.
I know it sounds mean, but I’d knock this benefit on the head. Roll NICs into income tax (which is what the government wants to do anyway) and tax everyone the same.
But we need to go further. I’d use the savings (plus some) to cut employers' NICs (currently nearly 14%!) on young workers. Give employers an incentive to take on the young. I know there are some schemes available. But I’d do it across the board.
If creating a flexible labour force was the challenge of the late '70s and early '80s, then surely getting our young back to work is the challenge for today’s crop of meddlers.
I know that many of the still working over-65s will be aghast at paying more tax. But think about it. Look at the chart of ever-increasing working age. Wouldn’t it be better to let the young take some of the strain?
Now if, like me, you have a niggling feeling nothing is going to change, then you need to take action…
Three investments you need to own
First, you need to have a decent proportion of your savings in precious metals. As you know, I think we are in the early stages of a very long bull run in gold. My advice is to hold 5% to 10% of your assets in precious metals. And stay tuned to The Right Side for more on how to build your gold exposure through coins and undervalued mining groups.
I’m also a keen advocate of emerging-market investing. Think about it this way: mature markets are deemed rich because they have lots of financial investments. But there’s an awful lot of merit in investing in economies without much financial wealth. Productive wealth – agriculture and industry - is what you want to invest in. That's why I hold 20% of my equity portfolio in emerging markets. You can read about why I favour JP Morgan’s emerging-market fund and the Ashmore Global Opportunities trust by clicking on the links.
Finally, we need to earn a decent income on our savings. It’ll be a long time before your deeply dysfunctional bank offers you a decent savings rate. So you need to build a decent income stream. And David Stevenson at The Fleet Street Letter has the skinny on that one.
David has found a great way to radically boost your dividends. I’m talking about a way to turn a 3% yield into a 21% payout. It’s down to what David calls 'the dividend multiplier'. He explains all in a short video he has just put together.
Click here to view it now.
• This article is taken from the free investment email The Right side. Sign up to The Right Side here.
The Fleet Street Letter is a regulated product issued by Fleet Street Publications Ltd. Your capital is at risk when you invest in shares; never risk more than you can afford to lose. Forecasts are not a reliable indicator of future results. Please seek independent financial advice if necessary. Customer Services: 020 7633 3600.
Your capital is at risk when you invest in shares - you can lose some or all of your money, so never risk more than you can afford to lose. Always seek personal advice if you are unsure about the suitability of any investment. Past performance and forecasts are not reliable indicators of future results. Commissions, fees and other charges can reduce returns from investments. Profits from share dealing are a form of income and subject to taxation. Tax treatment depends on individual circumstances and may be subject to change in the future. Please note that there will be no follow up to recommendations in The Right Side.
Managing Editor: Frank Hemsley. The Right Side is an unregulated product published by Fleet Street Publications Ltd.
Fleet Street Publications Ltd is authorised and regulated by the Financial Services Authority. FSA No 115234. http://www.fsa.gov.uk/register/home.do