Who wants to be a millionaire? I do. It’s why I have Premium Bonds and am roundly disappointed on the 1st of every month when there’s not someone on the doorstep with a comedy-sized cheque. But, you’ve got to admit, a million ain’t what it used to be.
A million pounds used to be an unfathomable sum of money. A fortune that would grant you financial freedom for life. These days, in some parts of the country, it will barely buy you a house. An increase in living costs and the mind-boggling wealth of the celebrities we see on social media every day has made a million seem almost like a drop in the ocean.
Can you retire on a million? It should be a no-brainer. But in a world of rising costs and rock-bottom interest rates, it’s become a bit of a head-scratcher. A million pounds used to be enough to buy you an annuity which would guarantee a sizeable income for life. Or you could stash the cash in the bank and live easily off the interest – before the financial crisis, when you could get 5% in a generic high street savings account, that sum would generate £50,000 in interest every year. More than enough for most retirees.
Now? A quick check on a annuity calculator tells me a healthy 65-year-old man could expect to receive an income of £32,000 a year from a million pound pension pot. In the bank, at 0.1% interest if you're lucky, you'll earn £1,000 interest a year.
It’s easy to see why some people don’t bother saving, when even squirrelling away a seven-figure sum isn't enough to guarantee your financial future. Mostly, though, I think this shows why financial planning is a fluid, ongoing task and not a one-off event. Because, who knows what’s going to happen to interest rates or inflation or our health in the next 5, 10, or 20 years? We know in investing there are no guarantees, but I can guarantee that saving something will leave you better prepared than saving nothing. Even if you don't make it to a million.
A Little Bit of Bitcoin
I find cryptocurrency, frankly, quite terrifying. It moves quickly, sharply and often for no reason at all. But the furore surrounding the likes of Bitcoin and Ethereum is no surprise when you see the staggering gains that some (I won’t call them investors) buyers have enjoyed.
My colleague Amy Arnott this week asked the question: do you need bitcoin in your portfolio? And she didn’t write it off entirely. While Bitcoin should not account for more than a fraction of your portfolio, she writes, it may have a role to play.
Because, ultimately, despite its volatility and unpredictability, you can’t argue with the fact that crypto does offer diversification. The fortunes of Bitcoin are tied to little else in the investment world, and it is such uncorrelated assets that can shine when the going gets tough.
Cryptocurrencies have been touted as the new gold, and part of me can see that’s a valid argument. Bitcoin lacks the main allure of gold – the fact you can hold it in your hands - but maybe today’s investors don’t need tangibility as evidence of reliability any more. At a time when everything is digital, when there is little we do actually hold in our hands, maybe investments too are evolving.
As with anything with a short track record, it’s best to tread carefully. And remember when you're looking at the performance chart, not just to focus on the bit where the line goes up.
Airlines Still Facing Turbulence
This week I spoke to our analyst Joachim Kotze about whether airline stocks can recover, and on the same day a friend send me a picture showing a flight sale with tickets to Greece this summer for £17. It appears that weeks of lockdown in dark and dreary England are getting to her.
Two thoughts occurred to me: one, I don’t feel brave enough to book a flight anywhere at the moment. You could just cancel if the restrictions don’t lift, she argued. But, not only am I unsure whether I want to sit in a compact plane with a bunch of strangers and risk getting stranded abroad, I also can’t be bothered with the faff of cancellations and rearrangements and refunds.
And my second thought was this: it’s going to take a lot of £17 tickets sold to get the airlines back in the black.
