“An investment in knowledge pays the best interest”
(Benjamin Franklin)

So 2021 reaches its halfway point and June comes to an end.Will the markets mirror the England football team’s Tuesday success with a better second half, though the first half wasn’t too bad…data being:

And on the currencies, it was positive month for the USD all round with gains against most major currencies…data being..

When averaged out, over the last century, an investment in the “Stock Market” has averaged 10% per annum. “Stock Market” is of course a very broad term, though more recently it’s performance has been correlated to the performance of the S&P 500. A fairly sound benchmark, although since the age of of trillion dollar companies, Apple, Microsoft et al, the S&P isn’t quite the same diversified play as the size of five or six of these giants accounts for around a third of its value.

So far this year the S&P 500 is up 14.4% so annualising 28.8%. At these rates of return US$100,000 invested for 10 years would yield you over US$1.2m. Due to the amazing power of compounding, parking that money for 20 years and your pot would be nearly US$16m….

Of course we all know that achieving this level of growth year on year by buying a simple S & P 500 tracker is not going to happen. Not only is a 28.8% return up there with the highest single year performances, but there will be years where your investment goes down. Though as illustrated 10% per annum is not unachievable and the said $100k would have still netted you over half a million dollars whilst you slept in 20 years.

To manage those times when stock markets are not performing or there is a nice chunk of profit, the all important diversification is often used by investment managers. Not keeping “all your eggs in one basket” is much cliched, but carries some weight.

The investment universe is enormous. So having exposure to investments with no stock market correlation feeds into a sound diversification model.

Whatever asset you look at, there are millions of ways to make money and millions of ways to lose money. Art, Whisky, Care homes, Litigation Funding are all alternative investment opportunitiy sectors of the market which have been trending in recent years. In many ways with good reason as there are plenty of profitable investments to be made in all the aforementioned.

Owning the right assets for your circumstances is also important. Property is a good example. It usually goes up in value over time, but there’s lots of other factors to consider such as costs of borrowing (which most people need) , lack of liquidity, etc etc

The scariest of all non market correlated assets is Crypto currency. I am not anti Crypto or want to be viewed as some kind of dinosaur. In my early learnings on the blockchain, my view is that its efficiency can revolutionise business. My doubts are whether there is a desire for this efficiency. Do I think Bitcoin will be worth more 5 years from now, yes, but back to the eggs and its definitely not an area that should demand more than 5% of your overall wealth.

The stories of those who made a fortune are great. Five years ago , $65,000 would have bought you 10 Bitcoin. Today that would be worth US$3.4m, though less than three months ago it would have been worth over $6m….which highlights the volatility and dangers for those unsophisticated in the sector.

The returns made by those over that five years who became very rich cannot be denied, but without checking I’m sure a $65k investment in Tesla or Air BnB at that time would also be worth millions. Successful Private Equity investors, Venture Capitalists are often making returns on a par with the Crypto crew.

My fear is that due to the ideology behind blockchain / crypto it’s sucking in people who have no idea what they are doing. It’s where I see the 80/20 rule being played out the most, ie 20% of people will make a lot of money because 80% will lose. Those who study , understand , trade can succeed no doubt, but its complex. Its the bloke down the pub who tells me it’s about “Crypto mate”, who I worry will be a victim whilst the smart money goes elsewhere.

Understanding what you are doing in your investing is important, although that doesn’t mean you have to know everything about the investments. Following advice such as the great Peter Lynch used to say “know what you own and know why you own it” can be applied to both stock market and non correlated stock market.

However understanding everything is not possible and trying to do so not smart. One trait most very successful people I have met all have in common is that they were good at something and focused on that. They often also claim to have been “lucky” to have had good people around them managing their affairs, accountants, investment advisors, lawyers etc.

So that investment in knowledge doesn’t need to be an inside out knowledge of the investment itself ,rather just knowledge that Bob, Wendy , Chris …whoever….. is doing a good job for you….or perhaps Craig 🙂