Money Tips Podcast

Not according to Michael Burry, the legendary investor featured in the book and movie, The Big Short, who is predicting a 2008-style crash.

American Michael J. Burry is a physician, investor, and hedge fund manager. He was the founder of the hedge fund Scion Capital, which he ran from 2000 until 2008, before closing the firm to focus on his own personal investments.

Burry made a fortune betting against CDOs before the 2008 financial crisis and his estimate net worth is $250 million. He currently manages over $100 million in his own fund.

In an interview with Bloomberg, Burry said index fund inflows (investment money) are distorting prices for stocks and bonds in much the same way that CDO purchases did for subprime mortgages over a decade ago. The flows will reverse at some point, he said, and “it will be ugly” when they do.

“Like most bubbles, the longer it goes on, the worse the crash will be,” said Burry, who oversees about $340 million at Scion Asset Management in Cupertino, California. One reason he likes small-cap value stocks: they tend to be under-represented in passive funds.

Here’s what else Burry had to say about indexing, liquidity, Japan and more. Comments have been lightly edited and condensed.

“Central banks and Basel III have more or less removed price discovery from the credit markets, meaning risk does not have an accurate pricing mechanism in interest rates anymore. And now passive investing has removed price discovery from the equity markets. The simple theses and the models that get people into sectors, factors, indexes, or ETFs and mutual funds mimicking those strategies -- these do not require the security-level analysis that is required for true price discovery.

“This is very much like the bubble in synthetic asset-backed CDOs before the Great Financial Crisis in that price-setting in that market was not done by fundamental security-level analysis, but by massive capital flows based on Nobel-approved models of risk that proved to be untrue.”

“The dirty secret of passive index funds -- whether open-end, closed-end, or ETF -- is the distribution of daily dollar value traded among the securities within the indexes they mimic.

“In the Russell 2000 Index, for instance, the vast majority of stocks are lower volume, lower value-traded stocks. Today I counted 1,049 stocks that traded less than $5 million in value during the day. That is over half, and almost half of those -- 456 stocks -- traded less than $1 million during the day. Yet through indexation and passive investing, hundreds of billions are linked to stocks like this. The S&P 500 is no different -- the index contains the world’s largest stocks, but still, 266 stocks -- over half -- traded under $150 million today. That sounds like a lot, but trillions of dollars in assets globally are indexed to these stocks. The theater keeps getting more crowded, but the exit door is the same as it always was. All this gets worse as you get into even less liquid equity and bond markets globally.”

“This structured asset play is the same story again and again -- so easy to sell, such a self-fulfilling prophecy as the technical machinery kicks in. All those money managers market lower fees for indexed, passive products, but they are not fools -- they make up for it in scale.”

“Potentially making it worse will be the impossibility of unwinding the derivatives and naked buy/sell strategies used to help so many of these funds pseudo-match flows and prices each and every day. This fundamental concept is the same one that resulted in the market meltdowns in 2008. However, I just don’t know what the timeline will be. Like most bubbles, the longer it goes on, the worse the crash will be.”

“Ironically, the Japanese central bank owning so much of the largest ETFs in Japan means that during a global panic that revokes existing dogma, the largest stocks in those indexes might be relatively protected versus the U.S., Europe and other parts of Asia that do not have any similar stabilizing force inside their ETFs and passively managed funds.”

“It is not hard in Japan to find simple extreme undervaluation -- low earnings multiple, or low free cash flow multiple. In many cases, the company might have significant cash or stock holdings that make up a lot of the stock price.”

“There is a lot of value in the small-cap space within technology and technology components. I’m a big believer in the continued growth of remote and virtual technologies. The global retracement in semiconductor, display, and related industries has hurt the shares of related smaller Japanese companies tremendously. I expect companies like Tazmo and Nippon Pillar Packing, another holding of mine, to rebound with a high beta to the sector as the inventory of tech components is finished off and growth resumes.”

“The government would surely like to see these companies mobilize their zombie cash and other caches of trapped capital. About half of all Japanese companies under $1 billion in market cap trade at less than tangible book value, and the median enterprise value to sales ratio for these companies is less than 50%. There is tremendous opportunity here for re-rating if companies would take governance more seriously.”

“Far too many companies are sitting on massive piles of cash and shareholdings. And these holdings are higher, relative to market cap, than any other market on Earth.”

“I would rather not be active, and in fact, I am only getting active again in response to the widespread deep value that has arisen with the sell-off in Asian equities the last couple of years. My intention is always to improve the share rating by helping management see the benefits of improved capital allocation. I am not attempting to influence the operations of the business.”

“I sold out of those investments a few years back. There is a lot of demand for those assets these days. I am 100% focused on stock-picking.” Source: Bloomberg.

In short, pardon the pun, Burry is saying that index or tracking funds are not safe and the amount of money flowing into them is creating a massive bubble, which will ultimately burst causing a recession.

But what about managed mutual funds and unit trusts? Surely, if the index funds crash, surely they will follow since they always tell their investors to “stay invested” or “ride out the storm” and people get burned.

I am not your financial adviser, so take advice on your investments and pensions funds.

Word of the Day

Index and Tracker Funds

An index or tracker fund is an index fund that tracks a broad market index or a segment thereof. Tracker funds are also known as index funds. These funds seek to replicate the holdings and performance of a designated index. Tracker funds are designed to offer investors exposure to an entire index at a low cost. Source: Investopedia.

There are more examples and practical steps to getting rich and being happy in my book, Yes, money can buy happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.

See more at www.moneytipsdaily.com:

More Recession Warning Signs

Should you be buying Gold?

3 Myths of Property Investment

Creative Finance Tools for Owning or Controlling Property

In this Money Tips Podcast episode:

1. Learn to manage your money
2. Start a spreadsheet or money app and record everything that comes in and goes out
3. Hold regular ‘board’ meetings with your family or financial advisers and review finances
4. Plan ahead for the next month, quarter or year and set financial goals to improve your life

Can you afford to retire?

Millions of people, or over 80% of the population, will either retire in poverty or not be able to afford to retire at all. What’s your strategy?

You can learn how to acquire income producing assets using other people’s money and other no money down strategies in order to become financially free.

Smart investors are using these creative finance, ‘no money down’ tools to build massive property portfolios in a few short years, as their hands are not tied by mortgage lenders and the need to save large deposits and pay higher taxes.

Before you buy another, or your first, property, take time out to learn proven successful strategies from expert multi-millionaire property investors on a free taster ‘property discovery day’.

If you’d like more information on how to acquire wealth building assets using none of your money, email me at [email protected] or send me a message through Facebook or my Money Tips Daily community.

See more articles at www.moneytipsdaily.com

How to Use Creative Property Financing to Beat the Banks

How to Use Creative Property Financing to Beat the Banks   In the last few years, mortgage lending rules have been tightened up by UK regulators. Lenders now dig into your finances far more deeply than just looking at your annual income. Self-certificated mortgages are all but... see -http://www.moneytipsdaily.com/how-to-use-creative-property-financing-to-beat-the-banks/

There are more examples and practical steps to getting rich and being happy in my book, Yes, money can buy happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.

More worrying stories have been flagged in recent news stories prompting fears of a looming recession.

Earlier today, the FT reported, that the Federal Reserve Bank of New York injected $66bn into short-term lending markets on Monday, building on a series of operations from last week to support the market after a severe bout of turmoil. The cost of overnight cash borrowing in exchange for US Treasuries — known as a repurchase agreement, or repo — soared early last week, pushing the main interest rate targeted by the Federal Reserve out of its target range. That prompted the New York Fed to intervene in the market for the first time in a decade on Tuesday. It subsequently continued daily $75bn cash injections throughout last week. Source: FT.Com

Then we had a report in The Times of “central bank warnings” after the Bank for International Settlements warned of the “troubling” rise of negative-yielding bonds to more than $17 trillion.

This afternoon, the Evening Standard Business News reported that bank share prices have tumbled following JP Morgan’s “gloomy prediction”.

I have previously written about the inverted yield curve, which has always preceded a recession.

Property prices are slowing, despite low interest rates and a shortage of housing in the UK, and smart money is moving into safe havens, such as gold and silver.

Almost 3000 shops closed in the first half of 2019 and large companies, like Thomas Cook, are going bust putting thousands out of work on a regular basis.

I don’t want to be a doom monger, but I think we are due for a recession.

Word of the Day

Recession

In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending.

Officially, a country is in recession after a period of general economic decline, defined usually as a contraction in the GDP for six months (two consecutive quarters) or longer. Marked by high unemployment, stagnant wages, and fall in retail sales, a recession generally does not last longer than one year and is much milder than a depression.

There are more examples and practical steps to getting rich and being happy in my book, Yes, money can buy happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.

See more at www.moneytipsdaily.com:

Should you be buying Gold?

Thomas Cook goes bust leaving thousands stranded

How to earn up to 500% higher yields on your investments without high risks

3 Myths of Property Investment

The accommodation platform Airbnb says it plans to go public next year. It was valued at $31bn in its most recent funding round and made more than $1bn in revenues in the second quarter. Airbnb hosts, of which I was once one, have made more than $80bn from renting their properties as of this month, according to the company.

 

Airbnb, like Uber, Amazon and Apple, have disrupted industries and brought down prices for consumers. But they have also done something else which they have in common - they have all helped small entrepreneurs make money and compete with larger businesses as well.

 

Airbnb has made $80 billion for landlords, like myself, Uber indirectly employees millions of drivers and Amazon has enabled small businesses to open up online stores and reach millions of people at a fraction of the cost it would’ve been a few years ago.

 

I started with Airbnb around five years ago when it was quite new in the UK, after hearing about it from my Son. 

 

From the start, it really was an amazing system. I made money from day one and rarely had an empty room. I only gave it up because it was becoming too much work and I couldn’t find anybody reliable to manage it for me.

 

Now there are companies which manage thousands of properties on behalf of landlords which are rented out through www.Airbnb.com and other platforms like booking.com.

 

I went to their convention when it was held in Paris. The guys who started the company are still young. They have built a worldwide property business without owning the properties, which is a lesson for all of you to think that you can’t get into property unless you have lots of money. They do of course own their own properties and they used to let rooms out to Airbnb guests just to keep their hand in and set an example.

 

The convention was amazing and so well organised. The staff were evangelical in their belief in the company and the whole event was almost like a religious experience. Unfortunately, the farewell Saturday night party was cancelled due to the Paris bombings. It was such a shame because Airbnb staff were contributing to helping to clean up parts of Paris in their little way.

 

I’m sure their IPO will be successful and will be very different from Saudi Arabia is Aramco listing, where wealthy families are being browbeaten in soon investing in the $2 trillion company.

 

If you would like to know how to get into property drop me a line n Facebook or email [email protected]

 

Word of the Day

 

Limited Company or Corporation 

 

A limited company is an organisation and legal entity that you use to set up to run your business. This means that each shareholder's responsibility for financial liability is limited by the value of the shares that they own but have not paid for. Company directors of such companies are not responsible for business debts.

 

In other words, if you are the sole shareholder and director of a limited company and the company goes bust owing £10 million or is sued for £10 million, you will not be liable for the debt, unless you have signed a personal guarantee or have acted fraudulently.  However, if you are trading as a sole trader, or a partnership, you would be liable for the debts and the creditors could go after you and sees your personal assets such as your house.

 

Limited companies can also use the letters LTD after their name and the UK is one of the easiest countries in the world in which to set up a company, which can be done within hours online at Companies House, and run a business. The tax treatment in the UK is favourable to business and we have good governance and rule of law. 

There are more examples and practical steps to getting rich and being happy in my book, Yes, money can buy happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.

See more at www.moneytipsdaily.com:

House Price Growth Slowest Since 2012, Say ONS

How to earn up to 500% higher yields on your investments without high risks

3 Myths of Property Investment

Should you be buying Gold?

Can you really by property with one click?

House Price Growth Slowest Since 2012, Say ONS

UK house prices rose at the slowest rate to July than at any time since September 2012, up by 0.7%, official figures reveal. According to the Office for National Statistics (ONS) there has been a general slowdown in UK property price growth in the last three years.

The overall growth rate has been dragged down by a declining market in London and south-eastern England.

However, the latest figures show the biggest drop in prices in the last year was in the North East of England. Property values in the North East region dropped by 2.9% in the year to July and were down by 2.1% in July compared with June, data from the ONS and Land Registry shows. There were also annual falls in house prices in the South East of England (down 2%), London (down 1.4%), and the East of England (down 0.5%).

Overall in the UK, the annual rise of 0.7% was the slowest since the 0.4% rise of September 2012. The biggest rise was in Wales, up 4.2%. The typical property in the UK is now valued at £233,000.

The ONS/Land Registry data is generally considered to be the most accurate house price estimate, although it covers a period which is slightly earlier than other surveys.

The news comes on the back of government measures to penalise buy-to-let investors and anybody buying a property over £1 million, which could be a London flat or small detached in the South East of England.

 

The Bank of England kept base rates at .75% today, as the US Federal Reserve and ECB cut rates this week.

 

Word of the Day

ONS

ONS is the Office for National Statistics. ONS is the official body with responsibilities are collecting, analysing and disseminating statistics about the UK's economy, society and population.

There are more examples and practical steps to getting rich and being happy in my book, Yes, money can buy happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.

See also:

How to earn up to 500% higher yields on your investments without high risks

3 Myths of Property Investment

Should you be buying Gold?

Can you really by property with one click?

New App launched that cancels subscriptions after free trial

 

British and American household debt had reached record levels, despite high employment, low taxes and historically low interest rates.

In the UK, the TUC has called for higher pay rises to solve the problem, but we know that is not always the answer. If you cannot manage small amounts of money, chances are you will not manage larger sums. Unless you change your habits, that par rise or bonus will be blown on more stuff or another holiday before you even receive it.

I cover more on managing money in my book on money, but in the meantime, here is THE M.A.N.A.G.E. D.E.B.T. SYSTEM – 10 TIPS TO GET OUT OF CONSUMER DEBT FOR GOOD: 

 

M - MAKE A LIST and prioritise debts in order of importance and cost of servicing the debt. Obvious priorities are things like keeping a roof over your head and maintaining power supplies, rather than paying those who are shouting the loudest. Look at the cost of your loans or credit cards and clear the debts with the highest interest rate or repayment. Clearing the high cost debts first will give you breathing space to pay off other debts faster by saving money on interest. Make a plan to start paying off debts and stick to it. Start clearing expensive debts, like credit cards or worse still payday loans, first so that you can reduce the rising tide of compound interest drowning you by increasing your balance faster than you can clear it. List all debts and monthly repayments on a spreadsheet and plan your route to financial freedom. This one step of making a list of your debts will make a huge difference.

A - AXE NON-ESSENTIAL OUTGOINGS. Go through all your standing orders and direct debits and ruthlessly cut out everything you don’t need, especially things like Sky TV or that membership of the gym you only visit once a month. Exercise at home and find a way to walk more often.

N - NEVER PAY THE MINIMUM PAYMENT ON A CREDIT CARD. Most people don’t realise that if you just pay the minimum amount required on a credit card it will take years before the debt is paid off. Pay as much as you can and ask the bank to deduct that amount or make extra payments manually to clear the balance faster.

A – APPLY FOR A BALANCE TRANSFER CARD. Whilst this is a short-term measure, transferring credit card balances from high interest charging companies to 0% cards will give you breathing space. Watch out for the balance transfer fees which can be a high as 3%. Sometimes it can be cheaper in the long run to pay a small interest rates with no balance transfer fees.

G – GENERATE EXTRA CASH. One of the most obvious ways of reducing your debts is to increase your income. This can be achieved in a number of ways including starting part-time business, working extra hours, qualifying for a pay rise or getting a higher paid job.

E – ENTITLEMENT TO BENEFITS OR WELFARE SUPPORT. Check if you are entitled to any benefits or tax credits. This especially applies to single parents and people in low paid work. One benefit or tax break could transform your finances overnight. To find out more check on the government website or see your local Citizens Advice if you live in the UK.

D – DON’T IGNORE BILLS OR DEMANDS. Never ignore a bill, red letter demand and especially from a debt collector, bailiff or court letter. Burying your head in the sand will not make the problem go away and ignoring any of the above will make matters far worse and cost you a whole lot more in the long run with interest and penalties. Ignoring bills and letters will ultimately lead to County Court Judgements and debt defaults which will stay on your record and credit file for up to six years, effectively ruining your credit rating.

E – ENTER INTO AN ARRANGEMENT. Speak to your creditors if you are having difficulties and consider an arrangement after taking independent advice. There are informal and formal arrangements, such as a debt management plan or IVA. Take independent legal and financial advice from a professional, not just from a salesperson selling a ‘debt clearance’ service.

B - BE PROACTIVE AND ASK FOR HELP. This could involve talking to your local Citizens Advice office, an independent debt counsellor or even a relative. We all need a little help from time to time and being in debt can be lonely and depressing.

T - TAKE YOURSELLF OFF CONSUMER DEBT FOR GOOD. Kick the habit. Never borrow to buy expensive consumer items which depreciate in value, and avoid rip-off deals like rent-to-own consumer products like the plague. The old adage of “if you can’t afford it do without it” should be drummed into this modern ‘I want it now’ age! We have become too accustomed to the ‘buy now pay later’ culture of ‘easy credit’, which should be called ‘easy debt’, and keeping up with the joneses, which I mention in my book ‘Yes, Money Can Buy You Happiness’.

 

M.A.N.A.G.E. D.E.B.T.

MAKE A LIST

AXE NON-ESSENTIAL OUTGOINGS

NEVER PAY THE MINIMUM PAYMENT ON A CREDIT CARD

APPLY FOR A BALANCE TRANSFER CARD

GENERATE EXTRA CASH

ENTITLEMENT TO BENEFITS OR WELFARE SUPPORT

DON’T IGNORE BILLS OR DEMANDS

ENTER INTO AN ARRANGEMENT

BE PROACTIVE AND ASK FOR HELP

TAKE YOURSELLF OFF CONSUMER DEBT FOR GOOD

 

Bonus Tips

1. Never use expensive payday lenders, unless you have no other choice, and especially unauthorised doorstep lenders will charge you a small fortune interest.
2. Start building your credit rating by making repayments on time and clearing credit cards faster. The higher your credit rating, the more access you will have to cheaper finance and the less you will be dependent on expensive credit.

 

Word of the Day

• IVA -Individual Voluntary Arrangement

In England and Wales, an individual voluntary arrangement (IVA) is a formal alternative for individuals wishing to avoid bankruptcy.

The IVA was established by and is governed the Insolvency Act 1986 and constitutes a formal repayment proposal presented to a debtor's creditors via an insolvency practitioner. Usually (but not necessarily), the IVA comprises only the claims of unsecured creditors, leaving the rights of secured creditors largely unchanged. Insolvency practitioners charge initial and ongoing fees that are in addition to the debt.

An IVA is a contractual arrangement with creditors and can be as flexible as an individual's own circumstances; they can therefore be based on capital, income, third party payments or a combination of these.

In this process, a debtor who has enough money left over after priority creditors and essential expenses, may be able to arrange an individual voluntary arrangement.

Based on taking independent advice, debtors with less serious problems may wish to consider a debt management plan.

 

The procedure for businesses is the company voluntary arrangement. There is also Administration where the business is effectively run by an appointed administrator. In the US, companies can take advantage of Chapter 11 rules and many companies have come back from this, including some owned by Donald Trump

There are more examples and practical steps to getting rich and being happy in my book, Yes, money can buy happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.

 

 

 

New App that cancels subscriptions after free trial

Have you ever signed up for a free trial online and then forgotten all about it? A year later you realise that you’ve been paying for a service you didn’t really want. Sometimes, it only comes to light when your credit card expires!

Good news. A young British entrepreneur has launched service which automatically cancels subscriptions at the end of the free trial period, the BBC reports.

The ingenious App was developed by Josh Browder, who in his teenage years invented an algorithm called ‘Do Not Pay’, which continues to successfully fight parking fines.

His latest App, Free Trial Surfing, is not directly linked to a customer's bank account or credit card, but Mr Browder says it is in partnership with a major bank. He declined to say which bank was supporting the venture.

"The idea for this product came when I realised I was being charged for a $21.99 (£18) gym membership from over a year ago that I was never using," he told the BBC.

"In fact, I had completely forgotten that I had signed up for a free trial in the first place. Constantly trying to keep track of when a 'free trial' period ends is annoying and time-consuming."

Ironically, he said 10,000 people had signed up to for a “free trial” to try Free Trial Surfing since its launch six weeks ago in the US, where Mr Browder, who is from the UK, now lives.

The two most common subscriptions the service has been used for are porn platforms followed by Netflix, he added.

How does Free Trial Surfing work?

Currently only available on Apple's app store, with a web version in development, customers are sent a virtual credit card number and invented name, which they can use to sign up for a service.

The card is actually registered to Mr Browder's firm, Do Not Pay.

The app can also forward emails between the service provider and the virtual card so that the customer's own email address is secure.

Mr Browder says the card will not work if used to pay for any other form of purchase.

He said some platforms were trying to block the service by figuring out which cards belong to Do Not Pay.

"Our bank is so big they would have to screw a lot of customers to stop the product. They would have to end the entire free-trial programme," he said.

He says that one day he may charge a subscription to use the service, which is currently free.

"It took around six months to build," he said.

"Right now we're testing it - maybe one day it will be a cheap subscription, like $2 per month.

"The reason it took so long was that we wanted to be sure it would be declined if it is used with a real purchase. We won't hold people to account - it will be us who takes the hit."

This looks like a brilliant idea, but not sure they have got the application right just yet.

Other business news

UK house prices rose at a slower rate in the year to July than at any time since September 2012, up by 0.7%, official figures show. More on this in tomorrow’s episode.

Inflation growth slowed sharply in August to 1.7% after computer game prices dropped and clothing prices were slow to recover from the summer sales.

The Consumer Prices Index measure of inflation fell below 2.1% in July, according to the Office for National Statistics.

Word of the Day

CPI - Consumer Prices Index

Consumer Price Indices are important indicators of how the UK economy is performing.

The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.

The indices are used in many ways by the government, businesses, and society in general. They can affect interest rates, tax allowances, wages, state benefits, pensions, maintenance, contracts and many other payments. They also show the impact of inflation on family budgets.

There are more examples and practical steps to getting rich and being happy in my book, Yes, money can buy happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.

See also:

How to earn up to 500% higher yields on your investments without high risks

3 Myths of Property Investment

Should you be buying Gold?

Can you really by property with one click?

 

Earn 500% more on your money and enjoy the prospect of long-term capital growth without buying HMO’s, Crypto Currencies or going into other high risk investments.

 

Low interest rates look set to continue for the foreseeable future. Whilst this is great for borrowers, it is disastrous for investors and people retiring on annuities.

 

Earning just over 1% on an ISA account is not even keeping up with inflation, let alone giving you a good investment return.

 

Even gross yields on buy-to-let properties in major cities have fallen below 4% and in London or sometimes around 2%. That’s ‘gross’ yield by the way, before costs such as letting charges and repairs.

 

What should you the investor do to improve the yield or income you receive on your money, particularly if you are relying on this to provide retirement income?

 

You can, of course, shop around for the highest rate available on savings accounts, but this is not going to improve your overall return by that much.

 

The Sunday Times reported this weekend that the highest headline returns on savings accounts were offered for just 72 hours before being withdrawn.

 

Investors may want to consider high yielding shares as an alternative to deposit based investments.

 

Yes, there is the risk that the value of your capital can go down as well as up, but many of these are blue-chip companies listed on the London Stock Exchange, which have good prospects of future growth as well as paying higher dividends.

 

Examples of these FTSE100 index (the top 100 companies listed on the London Stock Exchange) listed companies include the insurer Aviva PLC, which is currently paying a dividend yield of just over 8%.

 

The insurance company has over 30 million customers, a market capitalisation of £14.2 billion and trades on a P/E ratio of 9.53.

 

As I write, the shares are trading at 374p, but have been as high as 498p and as low as 350p in the last year.

 

Aviva is listed as a “buy” by most brokers, but could also be affected by Brexit.

 

Shares can be held within the tax-free wrapper of an ISA, which means that you would not pay tax on the income or growth.

 

Another example is the world’s third largest mining company, Rio Tinto, which has a market capitalisation of over £70 billion and is currently paying a dividend of just over 5.5%, trading on a P/E of 10.16.

 

The business dates back to 1873 and earnings have gone up by an average of 32% each year for the past five years. In August 2019, the company announced its plans to return more than £2.8 billion to its shareholders

 

However, some brokers recommended selling, as its share price is being threatened by unpredictable weather and a weakened outlook for minerals such as iron ore.

 

House builders Redrow PLC and Persimmon PLC have both fared well in the last few years, especially with the push for more new homes and the introduction of the government Help-to-Buy scheme for first time buyers.

 

Redrow has a market capitalisation of just over £2 billion, trades on a P/E ratio of 6.46 and currently has a dividend yield of 5.26%.

 

The company recently reported a jump in annual profits to £406 million for the year ended to 30th of June 2019, up 7% of the previous year, with annual revenue rising by 10% to £2 billion. Revenue was driven by a 13% increase in legal completions to 6443 homes. There was a 2% drop in the average selling price.

 

Persimmon is currently paying a dividend yield of just over 12%! That’s a 1200% increase on what most people are getting on an ISA account.

 

The company has a market capitalisation of over £6 billion, and reported a profit of £1 billion on revenues of £3 billion, yet trades on a P/E ratio of just 6.75.

 

The business trades under the brand names of Persimmon, Charles Church, Westbury partnerships and Space4.

 

Despite what you read in the press, around 200,000 new homes have been built each year for the past few years in the UK. There is still demand for property for various reasons, but builders could be dependent on schemes like help to buy, which might be cut.

 

As I said earlier, the price of shares can go down as well as up and dividends and the value of your capital are not guaranteed.

 

High yielding dividend shares are generally not that exciting in terms of capital growth. But the companies are expected to grow over the longer term, which means you can enjoy dividends and capital growth on your investment.

 

These are just a few examples of shares which offer dividends (a share in the profits) of over 5% of the share price.

 

You can do your own research online by googling high yielding dividend shares, or look at websites such as the London stock exchange and many other finance sites. Nowadays, we have at our fingertips real-time information which would have previously only been available to stockbrokers and financial institutions. You might want to put shares on your list of companies to watch, or ‘watch list’, and wait for the price to be right or when they are ‘on sale’ during a downturn.

 

As always, seek your own independent advice from an independent financial advisor. However, the best way to invest in shares is to learn more about it yourself, since most advisors would direct you towards a fund (on which some can earn a commission) rather than a direct investment into an asset such as a share or a property.

 

You can invest in unit trusts or mutual funds, which are collective investment funds specialising in holding income shares.

 

Word of the Day

 

P/E ratio

 

Although I have spoken about this term before, I think it’s important to repeat it here in relation to investing on the stock market.

 

P/E ratio is the price to earnings ratio or value in a company that measures its current share price relative to its earnings per share (EPS). In simple terms, it is the multiple of earnings you are paying for the business.

 

The higher the P/E ratio the higher growth investors are anticipating in the future, although this also means that the share price is higher right now and could be overvalued. In June 2019, the average markets P/E ratio was between 20 and 25 times earnings.

 

Amazon.com’s P/E ratio is 76 right now, which makes it quite an expensive buy even if investors are betting on a high in future earnings.

 

If you wanted to buy Amazon, you would have to pay 76 times its earnings.

 

The P/E ratio is just one measure of how investors value a stock and should not be the only measure you use when deciding whether or not to invest.

There are more examples and practical steps to getting rich and being happy in my book, Yes, money can buy happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.

Joseph Kennedy, the father of John F Kennedy, once said that when shoeshine boys were telling him to get into the stock market, he knew it was time to get out. That’s exactly what he did just before the 1929 stock market crash, which was followed by a bear market which lasted for decades.

 

Sometimes I feel the same about property when everyone seems to be jumping on the bandwagon. Now, there is even a company offering investors a way to buy a buy-to-let property with the click of a mouse.

 

Can you really buy a property online just like ordering something on Amazon? Well, not quite.

 

Dot, a Californian company with offices in Manchester, effectively gives you the facility to reserve a property online, leaving completion and the legal work to be done later on.

 

Investors are told that they can buy one and two bedroomed properties costing up to £200,000 in a “few pain-free minutes”, with just a few clicks, and enjoy a yield of up to 6% pa. Once you have selected a property, the company sends out a computer generated image of what the property would look like when refurbished, without investors needing to visit the site themselves. I guess this would be of more benefit in America where a site visit could involve thousands of miles of travel and even a flight.

 

The company is currently packaging up to 40 flats in Manchester, Birmingham and Leeds, Cities which it has identified as rental growth areas.

 

They told the Sunday Times that they expect it “will be completely normal for an investor to acquire, renovate and hold properties without ever visiting them in person”.

 

After the property has been reserved and Dot has carried out a credit check and verified that the investor is earning at least £30,000 per annum, the company lends investor the money to purchase the property and pay all of the stamp duty and legal costs, plus Dot’s 3% fee – which is £6000 based on a typical £200,000.

 

The loan, effectively a bridging loan, is offered at 0.6% per month or 7% per annum for 12 months. Investors are required to contribute a minimum 25% deposit.

 

Dot also sets up a limited company in the investors name, so that tax on the profits will be paid at the corporate rate of 19% rather than personal rates of 20%, 40% or 45%.

 

After the sale has been legally completed, Dot will offer to refurbish the property for an agreed fee, which can take up to three months.

 

Before refurbishment starts, the investor takes out a second mortgage with Dot, on the same terms as the first bridge, to cover the interest accrued on the first loan plus the cost of the works.

 

Note that at this point, the investor has still not paid anything more than their initial 25% deposit.

 

When the works on the property have been completed, the investor takes out a new long-term mortgage to refinance the first two bridging loans, based on the new higher value of the property. Dot then arranges a mortgage at an annual interest rate of between 2.89% to 3.99% for up to 30 years.

 

This reflects the higher mortgage rates paid by limited companies. It is still a mystery to me why the mainstream lenders have not got in on the market for lending to limited companies at more competitive rates than those offered by some of the more expensive challenger banks.

 

Investors are free to arrange their own mortgage and find their own letting agency to manage the property.

 

Bear in mind that unless the property has dramatically increased in value, you will need a bigger deposit than 25% (you are unlikely to be able to raise much more that 75% and may be lucky to get 70%) to take out the previous Dot loan, fees and refurbishment costs.

 

Based on their current projections, investors who stay with the company would make £3358 per year from a two-bed property worth £207,000 and rented out for £1000 per month or £12,000 per year. The rent looks a little high to me. A quick search on Rightmove showed that you can rent older 2 bed flats for £575 pcm and the only luxury city centre new-build flats command an asking price near to £1000 pcm.

 

Based on my calculations, this means investors will only receive less than 40% of the rental income. Mortgage payments, ground rent and service charge of roughly 30% (for insurance, tax reporting services and a management fee) are deducted from the rental income.

 

That doesn’t sound like a 6% rental yield to me and in in reality is more like 1.76% after costs.

 

Dot claims it will make it easy for people to purchase a buy to let investment without doing any work or research for themselves. However, nobody is going to do all this for nothing so there are quite lumpy fees and charges involved.

 

On the face of it, the Dot deal looks like an innovative scheme using technology to make it easy to get into property, but there are drawbacks.

 

Firstly, the advertised 6% yield is a little exaggerated, even without mortgage costs, when you take into account the hefty management fees. You may argue that any property will involve some sort of management fees, but Dot are selling a buying a package.

 

Secondly, buying a property remotely is always risky.

 

Thirdly, much of your profit will be eaten up by bridging loan interest costs, which of course are adding to the profits of Dot.

 

Fourthly, you are almost totally reliant on this company to fulfil the refurbishment and management and you have very little control over either. If the company releases 40 flats onto the market at once, there is a risk that you may not be able to find suitable tenants.

 

Finally, and most crucially, the scheme relies on a new higher valuation in order for you to remortgage out of the expensive bridging loan. If your lender’s valuer does not agree with Dot’s higher valuation, or the market dips or Dot just gets it wrong, you may end up having to put in a lot more of your own cash than 25% into the deal in order to get out of the punitive 12-month bridging loan.

 

The scheme could either be a major flop, leaving hundreds of investors out of pocket, or become the “Uber” of property investment.

 

In the meantime, I’ll stick to my own research and deals. The best way to get into property is to do your homework and learn from experts.

 

Word of the Day

 

Land Registry

 

Official government body that registers most property titles in England and Wales.

 

Your solicitor will normally do a search to check ownership as well as registering your interest in the property once you have completed your purchase.

 

If you would like further details on how to learn about property and become a professional property investor, email [email protected]

There are more examples and practical steps to getting rich and being happy in my book, Yes, money can buy happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.

See also:

How to earn up to 500% higher yields on your investments without high risks

3 Myths of Property Investment

Should you be buying Gold?

 

Should you be buying Gold?

Money Tips looks at whether you should be holding precious metals like Gold and Silver as part of your portfolio.

Word of the Day

Indicators

An economic indicator is a statistic about an economic activity, which offers an analysis of economic performance and predictions of future performance. 

Top 5 Economic Indicators for Global Investors

1. Gross Domestic Product. GDP represents the market value of all final goods and services produced within a country over a period.
2. Employment Indicators
3. Consumer Price Index. CPI is an indicator of inflation.
4. Central Bank Minutes
5. PMI Manufacturing & Services

 

Company indicators

Sometimes called Key Performance Indicator, KPI’s gives a snapshot of key measures, such as sales, capital reserves or accounts payable turnover, which tell investors and managers at a glace where the business is heading.

You could also run a KPI for your health. For instance, how many hours exercise did you do last week? How much alcohol or sugary foods did you consume? Do you smoke, and so on. Based on these KPI’s, you don’t need to be a doctor to know where your health is heading.