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3 Investing Snippets That Will Change The Way You Invest

In the subscribers area of the GillenMarkets website, I often state that there is no requirement to predict anything in order to invest well and safely. And let me prove this statement to you in three separate ways.

The first is an approach to investing in the UK FTSE 100 Index that we outline on the GillenMarkets website. Many investors think they have to have access to views and opinions as to which companies are deemed best positioned to prosper. Many think that without such views you will not select the right stocks.

Well I have news for you. It is not possible to predict the future. The real mystery is why so many try. Indeed, even professional security analysts spend inordinate amounts of time trying. But the average professional fund manager does not beat the index returns, fact!

Remember, it is the companies that produce the returns and you simply have to own a diversified list of them to benefit from the returns they generate. Indeed, the less you pay for their earnings the higher your subsequent returns are likely to be. Forget predictions, buy cheap and diversify!

GillenMarkets offers you access to an approach to selecting 15 FTSE 100 low price-to-earnings stocks, holding for one year and then re-jigging the portfolio. Without making any predictions or without taking any stockbrokers' advice, selecting 15 stocks in this way annually from 1995 to 2012 earned you 13% compound per annum (including dividends but before costs). Buying an index tracking FTSE 100  exchange-traded fund would have given you 7% per annum.

Low PER - Value of 10k

The table highlights the growth in value of £10,000 invested in the FTSE 100 (via an exchange-traded fund or otherwise) since late 1994. Buying the 15 stocks on the lowest price-to-earnings ratio in the FTSE 100 Index (Top 15) did substantially better. So, too, did an approach that bought 15 low price-to-earnings stocks spread across different sectors. Of course, you were not to escape the savaging in 2008. But the approaches roared back in 2009 and beyond. This approach is available to be followed in the members' area of the Gillenmarkets website and is taught on our 1-day seminars (next one is in November). Would you not like to learn this approach? The approach is also outlined in detail in Chapter 21 of my book 3 Steps to Investment Success.

The second approach that requires no predictions whatsoever is asset allocation (i.e. spreading your savings or pension monies across different asset classes). Investing exclusively in equities, as outlined in the FTSE 100 approach above, assumes that prosperity will be the economic order of the future. But we cannot tell the future and economic conditions can include deflation, inflation and recession (all of which are bad for equities and property).

Some of us simply believe that prosperity is what lies ahead and we are happy to throw our lot in with equities. Others, however, would prefer to invest while covering the risks of deflation (long-dated bonds), inflation (gold) and recession (bank deposits).

Investing across the four asset classes like this may offer you the prospect of lower returns going forward but it covers you for all economic conditions. In fact, from 1972 to 2012, without making any predictions but allocating 25% of your savings or pension monies equally to the four traditional asset classes (equities, long-dated bonds, gold and bank deposits) saw you safely through four decades of economic ups and downs.

The table below shows the returns statistics of having invested in US equities or alternatively across the four asset classes from 1972 to 2012 inclusive. Buying a US equity index fund (ETF) would have returned you circa 9.9% per annum (before costs). Surprisingly, spreading your monies across the four asset classes delivered only marginally less. I'll bet you didn't know that! In addition, the worst down year for the asset allocation approach was a negative return of circa -5%, and the approach only had 4 negative return years. The journey for equities was much more nerve-wracking. There was nine negative return years out of 41 years, and the worst return was -37% (yes, 2008).

Asset Allocation vs Equity Investing

The GillenMarkets website makes it easy for you to adopt the asset allocation approach should you prefer that route to investing. All you need is a stockbroking account (and a low cost one preferably). GillenMarkets provides its own in-house recommended list of stocks and funds that match each asset class. In other words, we do the heavy lifting for you.

The third approach to investing without the need for predictions is investing for income. If you buy strong defensive global stocks and diversified global funds with above average dividend yields then you are paid while you wait for capital growth.

Today, you can assemble a portfolio of diversified funds listed on stock markets (both passively managed exchange-traded funds and actively managed investment trusts) with an average dividend yield of over 4%. That's pretty attractive compared to near zero short-term interest rates or long-dated government bond yields of below 2% (German 10-year bonds).

Yes, the value of your portfolio may swing around the place as market volatility takes its toll. But you will receive your income, and growth in your capital over time if the funds you own deliver growth in the dividend income stream. No predictions required; you simply buy a list of diversified funds with above average dividend yields. Subscribers to GillenMarkets have access to high yielding funds that have been researched and vetted by us.

 

Rory Gillen
Founder
GillenMarkets