Our Investment Committee Meeting (ICM) took place last week.
At this meeting we decided NOT to make changes to either the asset allocations or the underlying investments.
Why have an ICM?
The purpose of our quarterly meeting is to review TCFP’s model portfolios. Taking into account the latest data available, we review all aspects of the portfolios.
This means looking at where the money is invested (the asset allocation) and how it is invested (the funds, ETFs and investment trusts that make up the portfolios).
We’re happy on both counts.
It turns out we were a little ahead of ourselves last year expecting imminent interest rate rises. Now they have appeared we’re comfortable sitting still for now.
We will keep this under review of course.
What did we talk about?
Looking ahead we expect the US to keep raising interest rates, expect 2-3 further rises this year. Nothing dramatic. They want rates at around 3% without trashing the economy.
Our best guess is they get there by the end of 2019.
These rises aren’t to stamp on inflation but rather to normalise rates so there is some ammo if needed in future.
We’re imagining that, for both the US and the UK, 3% interest rates are the new 5% interest rates from 20 years ago.
We don’t expect the Bank of England to anything for now on interest rates.
Mark Carney cares far less about inflation than the economy tanking. He can see that inflation rising to 3% is more to do with fully anticipated one-off factors (e.g. oil has doubled in the last 12 months) than anything more nefarious.
He also knows that Brexit will be hard (most of what you are reading and hearing to the contrary is guff) and wants the economy ticking along nicely. That’s best achieved via low interest rates.
This is my simple take on it. Please note that I did get a B in A-Level economics. A B was, once, a respectable grade:
Low interest rates and capitalism will combine and help money reach the most productive parts of the economy. And take it away from the least productive.
This is a constant process with things like Brexit changing the direction of money. It will continue.
Brexit means we are going to lose service jobs to the continent, that means less money being offered to service industries.
That money needs a home, an attractive home is exporters because all their goods just got 15% cheaper overseas.
They should get cheaper if Sterling drops further and that means more orders, revenue, profits and employment. And so it continues.
What are our hot tips?
The only tip I have for this newsletter is to consider booking your overseas holiday sooner rather than later.
Also brace yourselves for a good deal of wailing and gnashing of teeth as the elections start in Europe. The results will be less than desirable for those who like the status quo.
But remember, it’s all hot air and noise in the end.
Life will go on pretty much as it has over the last 50+ years. Think about all the horrors and upheavals that have happened since 1967.
Genocides, civils wars, recessions, currency crises, Communism collapsing, property booms and busts, stockmarket crashes…the list goes on and on.
And yet, despite all of this, society is much richer and healthier than could possibly have been imagined.
What about the portfolios?
How do interest rates and Brexit and my posturing affect how we view our model portfolios?
They don’t really, not at the moment. There might be a tweak here and there later in the year, for now we’re in a good place.
If you’re a TCFP client you’ve got a decent spread of equities and bonds perhaps with some commercial property and commodities.
You’re invested mainly in the UK but have exposure to the US, Europe, Japan and the wider global economy (aka everywhere).
We’ve also made sure you have a nice big dollop of cash on the side. This will see you through the leaner times when they inevitably come around.
It’s an approach that’s serving you very well.
We hope you sleep very soundly at night. Let us know if you’re not.
If you’re not a TCFP client we really hope you’re hearing something similarly sensible from your adviser. And that you’re sleeping well too.
For now (and forever) we maintain our investment mantra:
Only have money invested to the extent that it can be left there through a prolonged downturn.
Everything else should be in cash.
And it is, for all of our clients, always.
020 7993 4898
advice@townclosefp.co.uk