Those of you who know me well will be surprised to learn that this is not about beer, but instead about the ability to get hold of your money quickly - I discuss why this is important below.
Market Commentary
Germany 5, England 4 (Inflation rates). Media happy to discover (invent) new plagues on a daily basis as fear attracts attention.
Lock it away?
Investment in many cases can be considered as deferred spending; a lot of people effectively save for a number of years so that they can spend later on, by taking an income from their investments or possibly take capital amounts for dream holidays or big-ticket purchases.
Saving for a planned event or purchase is common but we tend to build in a high level of liquidity for our clients’ holdings because life is uncertain and emergencies can arise.
Examples:
Liquid Investments
Generally, stuff that is easily tradeable, including cash, large company shares, bonds (fixed interest securities) from larger institutions and governments, the latter better known as gilts. Returns can often be lower than those from more esoteric investments but you can typically get your money out without delay or penalty.
Illiquid Investments
Property and smaller companies’ shares are good examples here. Property is an obvious case in point -where disposing of property holdings can take many months or years and partial disposal is not an option (if you are hungry taking a few bricks out of your rental wall and trying to use them down at the corner shop doesn’t work well). Small company shares are another example – they may not have a trading market or prices might fluctuate wildly. We suggest only limited exposure to illiquid markets.
Summary
In the old days (when I was in black and white) a lot of investments had penalties for early withdrawal and sometimes minimum investment terms; the times they have a changed and the vast majority of investments we recommend have good liquidity, that is they are readily tradeable. This means that when emergencies arise – horrible plagues, fuel hikes, unexpected repair bills, kids (various) etc. - funds can be withdrawn as needed. There is a further consideration which is that taking withdrawals at times of market stress can cost you, however even during times of market falls funds are still accessible and if holdings are well diversified there will likely be some assets which have risen and can be accessed first.
p.s. Not a Hermit
Unless you live like Swampy without any dependants or other liabilities emergencies can and do arise – resulting in calls on your cash; for those of you with kids this is guaranteed and if you have cars, houses, pets etc. virtually inevitable. Banks will of course only lend you money when you do not need to borrow it.
Silver lining; there good bits arising from cash calls – you might for example be contacted by your plumber who has had a cancellation and can now fix your leaking taps before the year 2025…