Recently, I pointed out that this summer marked the tenth anniversary of the ‘credit crunch’ that heralded the sub-prime banking crisis and the ensuing global recession.
It’s also, as it happens, the tenth anniversary of an event of more modest significance – the tenth anniversary of when yours truly began writing for The Motley Fool.
And as you might imagine, those ten years have been – well – interesting.
Back then, the base rate was 5.75% – rather than the current more miserly 0.25% – and the consumer spending party was still in full swing. Today, in the wake of the steepest recession for three-quarters of a century, austerity is still the watchword for many.
And not that prediction is ever easy, but with Brexit around the corner, a weak government, and a troubling geopolitical backdrop, it’s difficult to think of a time when uncertainty has been greater.
Distractions and irrelevancies
Put another way, in such circumstances it’s very easy for savers and investors to focus on the wrong economic signals, and on the wrong investing messages.
Take the savings rate – the proportion of our incomes that we collectively save, rather than spend. In a macroeconomic sense, with inflation high, and interest rates derisory, then consumption rather than saving makes sense.
But the awkward truth remains that income that is consumed today cannot become wealth tomorrow – wealth built up to fund a comfortable old age, or a better standard of living, a higher income, or any other of the good things that come from having built up a nest egg.
Likewise, the general political – and geopolitical – situation adds markedly to the clouds through which savers and investors must attempt to peer through.
Brexit and the single market, protectionism, the value of sterling, America versus China, and the Conservatives’ wafer-thin parliamentary majority: constructing almost any kind of investment thesis is a tough call. And in that kind of situation, inertia often rules.
Consumption versus wealth-building
Nevertheless, inertia – doing nothing – is exactly the wrong response. Ditto, failing to save and invest.
You are going to get older. You will want a higher income and better standard of living. You will feel more secure with a decent buffer against adversity. You almost certainly will want to retire early.
And so on, and so on.
In which case, saving – and investing – are the only logical options. Just as they were ten years ago, when debt-fuelled consumers were instead splurging on property, expensive cars, foreign holidays, and lavish lifestyles in general.
As we all now know, that particular party came to an inevitable end, and while ‘party’ might be too strong a word to describe today, there’s no doubt that high levels of consumer expenditure are providing a floor for a still-precarious economic recovery. Remember, it’s less than a year since the Bank of England’s post-referendum emergency measures saw the base rate slashed by half to 0.25% in early August 2016.
Invest, rather than speculate
In which case, the messages refined here at The Motley Fool for the past ten years – and longer – remain unchanged.
Investing costs matter: drive down costs, and returns will improve. Investing is for the long-term, and taking an ownership stake in a business – it’s not about day-trading and speculation. Invest in businesses that are built for the long term, with sound finances, modest debt, and sustainable business models. And for most investors, dividends will play an important part of overall returns.
I’ve written such words before – and you have almost certainly read them before. Moreover, you’ll have read here of other investors who continue to build wealth through espousing such principles. Warren Buffett, of course. In the UK, there’s Neil Woodford and less well-known names such as Job Curtis.
In short, the advice – and the role models – are out there, freely accessible. The bottom line: stay the course. Don’t retire poor – retire rich.
