Ms. Purves has some larnin’ to do

Libby Purves wants there to be more NS&I savings. Like the P³. As we all know if your economic ideas are aligned with those of the Tre Professore then you’re wrong.

It’s when she comes below the line that we see the error:

Equity markets….over medium and long term they always give better returns.
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Recommend Purves:
A lot of people are reasonably anxious about any kind of stock market: and don’t rely on leaving savings there in the medium or long term
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And then:

My Grandfather inherited 1918 war bonds from his father. I remember my father cashing them in in the 60’s. They were worth about £200. My father remarked that in 1918 you could have bought a large house for what my ancestor paid in but on cashing them about a months wages. That’s what I remember of govt bonds. Never trust the Government.
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Recommend Purves:
inflation! Nothing ever keeps up with that…
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It’s just that equities are the very thing that have, historically, kept up with inflation……

15 thoughts on “Ms. Purves has some larnin’ to do”

  1. “Nothing ever keeps up with inflation…

    Like most, I have my rainy day money (cash) tucked up in savings accounts returning between 0.15 and 1.8pct. The latter, unfortunately, is an outlier (soon to mature fixed rate). Thank god for equities. Current inflation rate 1.2pct…my annual return on equities 6-9pct. I appreciate people are wary of stock markets, especially the fair sex, however no one is going to give you free money for sitting on your backside and not accepting medium to long term risk. They used to recommend punters bail out of shares when approaching retirement. But as we’re all living longer… While acknowledging the current market is something of a bubble, it’s not easy to jump ship.

  2. I’ve been averaging about 14% return on equity investments for the past decade, investing mainly in smaller companies. There’s the occasional failure (Patissie) on which I lost 100% and the occasional superstar (Kainos) where my gain to date is 480%. I reinvest dividends.

    The idea of 1% p.a. is about as exciting as the thought of having to attend a series of lectures by Spud.

    You will never get rich investing in government bonds. You might get rich investing in equities.

    “While acknowledging the current market is something of a bubble, it’s not easy to jump ship.”

    Agree. Choose a stop-loss and add it as automatic to your portfolio, then you don’t have to actually make the decision to sell. Periodically increase your stop-loss if the share value is rising, never ever revise your stop loss down.

  3. War Bonds. Redeemable 1957 or after. Issued at a coupon of 5% which was reduced in the 30’s to 3 1/2%. Finally redeemed by government when rates went below 3 1/2. You can always trust government with your money.

  4. Meant to add, the service from NS&I is utterly rubbish. It was never great, but this year it has been appalling, presumably because the staff are at home on full pay.

  5. MC is right. I opened an account to park some money with immediate access. I put some in, fine. I went to the online site to put in some more and couldn’t log in because they failed to text a code to my mobile (probably too few outgoing dialers so getting engaged signal at their end, my phone never rang or got a SMS). Tried the online chat. Useless. Tried the voice support. Waited on the line so long I decided not to deposit more but to close the account. Now waiting for my money back. Checked money sites online and found this is a common experience, the damn thing just doesn’t work. Kind of thing that will start a run in any other bank, when you can’t get your money and they won’t talk to you.

  6. Premium Bonds provide a nice little tickle, but one needs > £20,000 to make them worthwhile. NS&I are not allowed to provide better rates than the High Street which makes their savings a waste of time. Much of their operation is outsourced these days, of course, so instead of monkeys in cages answering the phones, they are now in the wild.

  7. I use premium bonds as a depository for my anticipated income tax bill.

    It’s worth it for the emails I get saying I’ve won. I can dream it’s the £1m. Sometimes I leave it a couple of days before checking the website to see what I’ve won so the dream stays alive a little longer.

    Is it?……..Is it?…….Is it?……..oh. £25.

  8. “It’s just that equities are the very thing that have, historically, kept up with inflation……”

    Depends on your time scale. Typically they do badly in a period of high inflation and then pay you compensation afterwards.

    The belief that equities always pay off is contradicted by the long term American record. But if you look only at American records going back to a date selected by share-pushers you’ll come to a more optimistic conclusion. If ever we enter a Sound Money period the longer term records will come into play again. I suspect.

  9. Yes, PB’s are a great place to park some cash and there is no temptation to buy lottery tickets as for every £ there’s a ticket and you get to keep the £!

    As far as premium bonds are concerned, I’ve never had any problems, not even after their website changes. Log in, buy or sell, money’s in the bank account account after a couple of days.

  10. Agreed, premium bonds offer low returns but quick access and a better chance of winning than the lottery.

    NSI have offered some other good products in the past e.g. inflation linked bonds but they don’t seem to be doing so any more.

    If NSI did offer new savings bonds there would probably be a good takeup but it would be cheaper for governments to borrow on the money markets.

  11. @Dearieme

    “The belief that equities always pay off is contradicted by the long term American record. ”

    Compared to inflation?!? And taking “always” to mean long-term – clearly it underperforms inflation, or even banknotes kept under the bed, during crashes? One of us, either you or me, is spectacularly misinformed.

    I do take the point that you can fiddle the stats by mucking around with the start and end date. But I think some other critiques of “stocks always win” might be stronger, actually. A grand version of “past performance is no guarantee of future results” might even apply to the last 200 years of stock market data – humanity, or at least that part of it fortunate enough to live in the right places, has experienced a couple of centuries of extraordinary economic growth, quite outside historical norms. There are a couple of gloomier economists who wonder if we might revert to something more normal – not necessarily because further growth is environmentally or technologically unsustainable, but perhaps because productivity flatlining. If there’s a chance they’re right, a 20-something nowadays ought to be aware there’s a corresponding chance that stock returns in their pension scheme may not match those received by the generations above them. Another issue is that looking at British or American stock market returns understates risk due to selection bias – there are several examples of quite large stock markets where everyone lost everything. Russia after the 1917 revolutions, China after the communists won the Civil War. Though there are also examples of people losing out on other assets – real estate or private business property rights forfeited/seized, government bonds not repaid, cash made worthless by hyperinflation, so it’s equally true that it’s not just the stock market that you can lose everything on.

  12. there are several examples of quite large stock markets where everyone lost everything

    Often their lives too, so the value of the stock market was more or less irrelevant to them.

    If you include dividends, are there any periods over twenty years where the market was worse than inflation?

    My family invest for dividends. Capital gain is a nice extra.

  13. @Chester

    Yeah, I reckon it’s a shame the FTSE index (and others) that you see quoted all over the media doesn’t include dividends. People who knock shares are often quoting the capital gains figures only – “the FTSE is stuck below where it was X years ago, which shows why shares aren’t worth it” – when if you include dividends even the medium-term performance usually outperforms cash in a savings account.

  14. The Sage of Ely actually did this in his pensions plan. Compared FTSE without dividends to the bond returns with interest…..

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