Page 42 - Phonebox Magazine June 2006

Finance Matters
brought to you by Advison Independent Financial Advisers
Worried about the Stockmarket rollercoaster?
The recent volatility in stock markets around the world has yet again brought into focus how quickly we all forget things. Four or five years ago, everyone seemed to have forgotten how well the stock market over the longer term can perform and all was doom and gloom. Many people, in particular financial journalists, were forecasting low growth rates of no more than 5% to 8% for the foreseeable future. However, from March 2003 to April 2006 we then saw the FTSE 100 rise by 85% and the dark days of 2000 to 2003 were pushed to the back of our minds.
The last few weeks have seen a sharp correction and once again the papers are full of stories citing inflation in the US meaning the market is in for a prolonged period of underperformance. Of course the experienced investor knows to treat the twin imposters of boom and bust with equal caution. If you are feeling nervous due to this latest volatility, then a short history of investing may put things into perspective.
Although the first evidence of organised trading in stocks and shares goes back to 1698, the modern regulated stock exchange was born on 3rd March 1801 in Sweetings Alley in London. Long before this date, investors had experienced two notable ‘crashes’ after investing in Tulips and the South Sea Company.
Perhaps the most extraordinary case of investors losing vast sums of money was in 1637. At the time Holland was experiencing a great deal of prosperity and the market for tulips, a flower associated with nobility, blossomed. At its peak in 1636, a pound of yellow tulip bulbs rose 60-
fold which meant they cost the same as five years' average pay or enough to buy four houses. However, the market (not surprisingly) crashed in February 1637 and many investors were ruined.
Later in the same century the South Sea Bubble took shape. South Sea was a company that privatised a portion of the British national debt. As a result the company received annual interest from the British government and was also granted monopolies on trade with South America. South Sea shares rose as they were snapped up by the public. As this continued, little regard was taken of the rather low level of interest payments from the government and the fact that the South American trading operation was losing money. Despite this, the company's share price continued to rise and investors piled in before it crashed.
Often when investors suffer heavy losses, people question the experience, knowledge and intelligence of those caught. In the case of the South Sea Bubble, amongst those losing heavily were Sir Isaac Newton, King George I and, perhaps most worrying of all the Bank of England. Indeed the Bank of England's Director was forced into bankruptcy!
Of course the key element that links these two events is greed. In the real world today we understand the need for a balanced portfolio, providing exposure to a range of assets and diversity within each asset class. Whilst restricting the potential growth, it also reduces the possible loss and a longer term outlook can help to view recent events in a more relaxed manner. d
Whether you are considering making an investment or have a portfolio already, Advison is able to help you. With over 40 years of investment experience, Kevin and Andrew can help plan an investment strategy to suit your needs.
Unlike most IFA’s, Advison provide its clients with regular personalised reviews of their investments, enabling us to ensure the assets they hold are still relevant to their circumstances and suitable for their needs. We would be pleased to discuss your specific situation and plan the most appropriate course of action for you. For full details about Advison please see our advert below.
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Advison is a small, friendly and reliable firm specialising in Investments, Retirement Planning and IHT Mitigation.
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42 Phonebox Magazine