Monday, 22 September 2008

Credit crunch - hold on to your cash

There's so much to say and I haven't got the time right now, I'll come back to this and write more. What I need to say now is that we all need to think seriously about what our money, most particularly our pension money, is invested in. Those people with public sector pensions are laughing. Those of us with private sector pension funds need to make up our own minds and try to protect ourselves the best we can. I'm going to shift all my pension money out of shares and into the "distribution" funds which are the ultra safe, low return funds which people normally use when they're close to retirement. In my opinion the stock market rally after Paulson outlined the bail out plan is an opportunity to get out. Check out the FTSE chart on the LSE website.

I think we're about to enter an era of low returns from stock markets and I think this would be true even without any energy or environmental considerations. Add energy and climate into the mix and the game changes from maximizing your returns to minimizing losses. If everyone else is losing more money than you then relatively you become richer. When the next surprise comes along it may be too late to get out.

I'm not saying the entire financial system is going to collapse within the next couple of years. I am saying that the financial system can't last until we retire. The credit crunch is just the first tremor compared with the earthquakes that are going to come when the world oil supply starts dropping. I think that it's more likely than not that the world oil supply starts dropping before we come out of the bottom of this business cycle. So it is quite possible that we are about to enter a depression which will not end.

Update: I'm moving my pension money out of shares. I've looked into the funds and apparently the "Distribution" fund has shares in it! Doesn't make sense to me. Anyway, I'm moving my money into cash and index linked bonds. N.B. I'm not expert in investment. The important things I think are: keep an eye on the news, keep learning about what is going on, don't assume that the future is going to be like the past, try and be ahead of the crowd and make your own mind up.

1 comment:

Tim Lennon said...

Very interesting point on the funds, and how the market might move. Maybe I'll just seek a public sector job.... (grins evilly)