Our content this month are as follows:-

• Merry Christmas & Happy New Year
• In the News
• Books we have read
• Quotes of the month

A very Merry Christmas and a Happy New Year to all our readers and especially our clients. Whilst we are constantly aware of how important our clients are to us, this is a good time of year to remind ourselves of the fact that without you we do not have a business. We appreciate your continued support and the positive feedback we receive on a regular basis, via our comment cards.

As has become our custom, instead of sending small gifts, we will be making donations to the following charities this year:-

• The Stroke Association

• Macmillan Cancer Support

• The British Heart Foundation

For those of us old enough to remember its launch it came as something of a shock to realise that the Sun newspaper was 40 years old on 17 November 2009. Along with some of their more amusing headlines from over the years (you will know those we mean), they published the prices of some of life’s staples in 1969. We thought we would reprint some of these together with their current price in the list below:-

Jar of Coffee 1969; 9s (45p), 2009; £4.10 (200g jar)
Crusty White Loaf 1969; 1s 2d (6p), 2009; 87p (Warburtons)
Pint of Milk 1969; 1s 1d (5p), 2009; 45p
Pint of Lager 1969; 2s 2d (11p), 2009; Approx £2.95
20 Cigarettes 1969; 5s 10d (29p), 2009; £5.66 (B&H)
Mars Bar 1969; 10d (4p), 2009 42p
Average Home 1969; £4,640, 2009 £167,664 (11-2009)
TV Licence 1969; £11, 2009; £142.50
Ford Escort 1.3; 1969; £672, 2009; £17,495 (Ford Focus Style)

Inflation grew by 12 times over the same period so some items have not increased by as much as inflation (coffee, milk and Mars bars), but some, such as cigarettes and lager, have outstripped inflation by a great deal. House prices grew by around 30 times (2.75% per annum greater than the rate of inflation); however if you had placed the same £4640 into the stock market in 1969, rather than property, it would have been worth £496,163 - rather more than the £168,000 the property was worth.

Premium Bonds

Many clients own Premium Bonds, often up to the maximum, and with returns currently so low we have been asked whether they are a good investment or not. As with all investment questions, it depends! Below is a brief summary of the pros and cons:-

Pros

• The capital is 100% secure
• It is a unique form of gambling, where your capital is not at risk
• On average you should win 10 tax-free prizes a year
• You might win £1 million tax-free!

Cons

• The current return is an historically low 0.5% per annum
• Inflation is eating away at your capital each year
• 90% of the prizes are £100 or less
• If you hold £1000 worth of Premium Bonds your chances of winning the £1 million is 1 in 40 million - worse odds than the National Lottery.

As usual, you must weigh up the risks and rewards and make your own mind up.

This month we are recommending the best book you are ever likely to read on investment. We are big fans of William Bernstein who has written "The Intelligent Asset Allocator" and "The Four Pillars of Investing". He has now written what we consider to be his best yet, "The Investor's Manifesto".

Previously a practising Neurologist, Bernstein brings his considerable intellect to bear on all of the major investment issues; risk versus reward, asset allocation, active versus passive and behavioural finance (who could be better qualified?). A couple of quotations will give you some of the flavour of the book; "the reason that guru is such a popular word is because charlatan is so hard to spell"; "do not crave fancy investment vehicles; most will leave a sour taste".

The book will explain why good companies are poor investments, why the booming economy of China has provided negative returns to investors over the past 15 years, why people over 65 tend to be the shrewdest investors and why the skilful investment manager is largely a myth. We cannot recommend this book too highly and, as usual, it is available in good bookstores and from Amazon.co.uk. If you have any trouble finding it please contact Vickie at vickie@indexwm.co.uk.

“Christmas gift suggestions: To your enemy, forgiveness. To an opponent, tolerance. To a friend, your heart. To a customer, service. To all, charity. To every child, a good example. To yourself, respect." Oren Arnold

“Christmas is doing a little something extra for someone." Charles Schulz
“When we recall Christmas past, we usually find that the simplest things - not the great occasions - give off the greatest glow of happiness." Bob Hope

From all of us at Index, we wish you a Merry Christmas and a Happy New Year.