Welcome to the February 2018 newsletter from LIFE-TIME Financial Group.
In this month’s issue:
- Global Market Pullbacks in Perspective
- What is Bitcoin?
- Hot interest rate – 6 months at 3.50 %
The Global Market in Perspective
It has been widely reported in the news recently that global share markets fell in early February, giving back 6% of recent gains.
Whilst this has been a more substantial drop than usual, the size of the pullback is actually within the “normal” bounds of market behaviour, even when share markets are generally rising. This is something that tends to be forgotten by the mainstream media!
Not to mention that most investors hold a diversified portfolio, with their savings spread across other asset classes, such as fixed interest, property and cash, which smooths out the bumps in an investor’s portfolio.
2017 saw unusually smooth returns, which has fed its way into the general public’s expectations and the media’s interpretation of the recent pullback.
For 2017, the US share market index (the S&P 500), only had four declines from its peak that were greater than 1%. The largest fall was only 2.8%! This smooth performance, despite a positive economic outlook, is not normal. History suggests that on average, share markets actually have a 5% pullback once per year, and a 10% decline every two years.
Not only this, January was the fastest start to a calendar year for US equities since 1997. However, February started with a bump, which has broken the longest equal consecutive monthly rise in history at 15 months, first set in 1959. The irony of a pullback is that everyone agrees that they are natural, normal and healthy, until they happen – then not so much!
What is Bitcoin?
Bitcoin was the first example of what we today call cryptocurrency.
The system enables payments to be sent between users without passing through a central authority, such as a bank or payment gateway. It is created and held electronically. Bitcoins aren’t printed, like dollars or euros – they’re produced by computers all around the world, using free software.
The important thing to understand is that it’s not just a failed currency. It’s also a failed payment system.
Every time a new bitcoin is “mined” – they’re released on a set schedule for anyone to win by running a computationally complex computer program – it updates a public record of every single bitcoin transaction. In theory, that could let you transfer things online without having to pay a trusted third party, such as a bank, to do so, since everybody already knows how many bitcoin everyone else has to send. In practice, though, all it’s done is make you pay a new third party (the bitcoin network) even more than you were before. That’s because bitcoin’s limited bandwidth means that it can’t even handle its limited number of transactions. There’s a line, and you have to pay if you want to get near the front – an average of over $20 now.
So a bitcoin is just a share of this system. It’s like a stock in a newer-and-not-improved Paypal. Although that might be selling it a bit short. It’s more like a time machine that exclusively takes you back to 1999, the peak of the dot-com mania.*
Also, after more than a year of fears around cryptocurrency scams and links to crime and fraud, the threat of bitcoin regulation has finally started to bite as the price of the digital coin fell below $10,000 in January, its worst month in years. There are serious fears that bitcoin has created a bubble that could burst at any moment.
If the bitcoin bubble has a redeeming feature, it’s that it has started some interesting conversations. One is, should governments get into cryptocurrency? This much is already clear, though, the future of money may or may not include digital cash, but such government-backed currency, if it’s ever issued, will be very different from bitcoin.
Regardless of life experience, income or education, most people find investment decisions challenging and this is where we can help.
* Excerpt from an article published by The Washington Post – 18
Interest Rate Special
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