Money Times - November 22, 2016

Posted by Jill Kerby on November 22 2016 @ 09:00


The hysteria over the Trump election and the Brexit chaos is going to settle down – at least for a while. Then expect it to ramp up again in the New Year with the inauguration of the new President on January 20 and as the end of March triggering of the Section 50 Brexit deadline.

Trump’s policies may or may not revitalise the US economy, but the biggest fear for us is a negative jobs and tax revenue fallout in the US dominated high tech, pharma, medical devices sector and the banking they do in the IFSC. A hard Brexit meanwhile could also have a detrimental effect on Irish export sectors and the cost of living here when UK imports start costing a lot more.

“Ignore the noise,” my financial adviser, Marc Westlake keeps saying, meaning, “stop reading the headlines. Stop paying attention to the short-term ups and downs of reactionary markets and currencies. Ignore the dire ‘predictions’ – the pundits are only guessing. They don’t have crystal balls.”

He’s been giving me this advice for years and has stopped hasty, expensive reactions at every market downturn (or Brexit-like event.)

It’s not so easy to ignore the noise, when you write about personal finance for a living. But the theory is sound, especially when it’s accompanied by evidence-based market and financial analysis that shows that widely diversified, low cost, regularly balanced portfolios, held over a long term consistently outperform actively managed and traded, limited assets or funds, stuffed full of excessively high administration and management fees and commissions.  

Few fund managers, no matter how lucky they are in picking winners when markets are booming, do so consistently. A highly diversified, mostly passively managed, low cost fund of assets (we’re talking of thousands of shares, bonds, properties, commodities, fixed income assets) is more likely to weather volatility and meet realistic customer expectations.

But is following sound investment advice all your need to protect your wealth and financial security?

I don’t think so.

For the last eight years, far outside your adviser’s good sense and control, panicked central bankers have been artificially depressing the cost of money to save insolvent banks, prevent mass debt default by countries and corporations and to ‘stimulate’ more borrowing and spending to kickstart economic growth.

Their low to zero rate monetary (via QE) policies have further enriched the rich, but widened the gulf between them and the ‘not-the-1%’ who’ve been saddled with the bill for bailing out of the insolvent financial sector. Global debt – hastened by leverage derivatives like sub-prime loans which Warren Buffett ominously described as “financial weapons of mass destruction” back in 2008 – has doubled since 2008.

About a quarter of all Irish economic activity is generated by foreign owned companies, most of those, American. Donald Trump wants them to reconsider where they make their goods, their R&D and their back-room administration.

If Trump’s protectionism and a hard border-laden Brexit reduces future trade, profits, jobs, then it will also reduce the €600 million plus corporate tax bonanza we’ve enjoyed – unexpectedly – in 2016. What happens if that money – a higher corporate and private sector income tax take dries up? (Exchequer borrowing for 2017 will be c€1.2 billion, but €10bn will be allocated to pay interest on the €200 billion national debt.)

Back in 2010 I started writing about a concept I called, Build an Ark. It’s time to dust it off.

You build a financial Ark in order to weather – just in case – the economic fallout, like the job tightening or higher prices that could come with higher interest rates and trade protectionism. 

Building the Ark involves not just carefully assessing your current financial position – your income, outgoings, tax, debt, savings, investments, insurance (protection measures) – but taking steps to improve it.  That means controlling your spending, reducing and avoiding debt, paying only the tax you must…essentially, living within your means. If you’re in the private sector and want to retire some day, the Ark will also prioritise your savings and investments. 

Building a really strong Ark needs lots of willing hands. Involve your immediate and wider family and loved ones. Thinks about building one big enough to make sure no one gets left behind if it starts raining heavily again; that means tough, honest and hugely challenging discussions between the generations about individual incomes, assets, debts…and dreams. (Like home ownership, third level education, entrepreneurship, retirement and long term care for elders.)

The 2008 crisis never ended. It was plastered over and put off. The debt overhang could never support a genuine, global, sustainable recovery. 

By building your Ark, you can avoid a repeat of what came after 2008. 

Every parent and grandparent who Skype’s Christmas greetings to their young ones this year in America, Australia, Canada knows exactly what I mean.

(If your community group or organisation wants to book my How to Build An Ark seminar please contact me at jill@jillkerby.ie )




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