The weekly - How would you invest £170 million?

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15/10/2019
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Last week, after several rollovers, one lucky individual scooped the entire £170 million EuroMillions jackpot. I am sure most lottery players rushed to check their ticket numbers last Wednesday morning when the winner was announced as a UK national. I also went to check my numbers with dreams of what I was going to spend £170 million on. I had won! Alas, the £8.60 for only matching a few numbers wasn’t quite enough to fulfil any of the spending obligations I had in mind if I won the jackpot.

Of course, we know the odds of scooping the top prize are remote; in fact, the odds stand at around 1 in 139 million, and you must be in it to win it – the same can be said for the stock market.

Some may view the lottery as gambling, however the stock market is more often seen as a rising tide which lifts all boats. Of course, this isn’t to say that there aren’t storms at sea, but as we all know storms are only temporary and with enough patience you can usually ride them out. The market does have its ups and downs, but generally evidence has shown that markets tend to rise over time.

The FTSE 100 currently yields around 4.5%, so should the lucky winner decide to invest all their £170 million winnings in the largest quoted companies in the UK, then they would look forward to earning an income of £7,650,000 per year, or £637,500 per month should the market remain relatively flat.

As we know, markets tend not to stay flat and even with taking a significant income, over time the winner could also reap the rewards of capital appreciation which, in turn, can boost the income received. As you can see from the chart below the FTSE 100 has returned just over 40% in the last ten years. Imagine if the winner had been able to invest their £170 million in the FTSE 100 ten years ago - as well as taking an income, their winnings could have swelled to £238 million. Of course, had they chosen not to take an income at all then their winnings could have grown to a staggering £350 million.

Please remember that past performance is not a guide to future performance.

It would not be entirely sensible for the winner to invest all their winnings in the UK as geographical diversification would further de-risk their portfolio. While there is so much political uncertainly around the world this would be particularly important, although there does seem to be some progress in the right direction in two of the main areas: Brexit and President Trump’s trade war with China. It would also be sensible to diversify with other asset classes like property, fixed interest and commodities like gold.  

Neither would we suggest that the winner invest all their money in the stock market. Of course, the obligatory purchases of a lottery winner usually involve upgrading their home or possibly buying a second home overseas – perhaps a new supercar could be in order? It also usually involves quitting your job and travelling the world, although before quitting your job in a blaze of glory it is always recommended to double check your winning numbers, or even better, wait until the jackpot has been paid in to your bank account! It is also understandable that most winners would want to help family and close friends. After all, it would be difficult to really enjoy such a windfall on your own. Philanthropy may also be high on most people’s agendas – being able to help those causes closest to you.

Nevertheless, once the obligatory lottery spending requirements have been fulfilled, it is important the winner understands that investing for the long-term remains as important as if they hadn’t won the EuroMillions. The reason we say this is that people generally always live within their means, so with more money there are luxuries that you can buy, but sometimes the maintenance of a large property, superyacht or private jet can leave even the wealthiest reeling from the cost. It is always a sad story when you read about previous lottery winners who have gone bankrupt. This is normally through the misconception that the money will never run out. Generally, when you have more, you spend more – it’s that simple. Whether you win the lottery or not, good quality financial advice is always key, not only for your future, but also for any dependents.

Cost of advice and the investments should also play a part, but rather than just focusing on the cheapest, it is important to look at the service you receive and the quality of the advice.

Of course, it is easy to see the benefits of a lottery win, but with the right advice and guidance everyone has a chance to enjoy a better future from investing in the stock market. Unfortunately, it probably won’t be easier than winning the lottery!  

 

Brexit hopes spark strong gains in Friday trading

UK and European equity markets closed the week strongly as news of positive Brexit discussions broke. The UK’s FTSE 100 index rose to a weekly gain of +1.3%, most of which achieved on Friday.

The more domestically focussed FTSE 250 made a weekly return of +2.9%, adding more than +4% on Friday alone once the respective Irish and UK Prime Ministers had voiced their encouraging progress.  The UK mid-cap market is sensitive to the value of the Pound which rose strongly; appreciating +2.7% and +2.1% over the week against the US Dollar and Euro respectively.

European markets made strong gains last week; the Deutsche Borse DAX 30 rallied +4.2% whilst the French CAC 40 rose +3.2%.  The two benefited from Friday’s Brexit news and have also been buoyed recently by the European Central Bank’s recent decision to resume Quantitative Easing policies. It was also revealed last week that this decision was against the advice of a number of members at the ECB.  President Mario Draghi has overruled the committee on only a few times during his eight-year term which ends this month. One ECB member resigned in protest following the policy announcement.

US markets made more modest gains, recovering early-week losses to close the period +0.6% higher.  Trade negotiations are ongoing between the White House and Chinese negotiators and further concessions in the coming weeks are anticipated from both sides.  However, a comprehensive resolution remains some way off.

Citing a deteriorating global outlook, geopolitical uncertainty, European economic weakness and trade tensions, both World Bank and the International Monetary Fund (IMF) downgraded their respective 2019 economic growth forecasts last week.

Commodity prices enjoyed a more positive and a somewhat steadier week after a period of volatility recently. Brent crude oil rose +3.0% to close the week at $60.25 per barrel.

 

The week ahead

It’s a busy week for domestic data, kicked off with the latest employment statistics from the Office for National Statistics today. Unemployment is expected to have held firm at just 3.8% during the three months to the end of August whilst wage growth is forecast to have remained at the +4.0% annualised rate set last time. CPI inflation figures covering September are due on Wednesday with retail sales on Thursday the other standout UK related figure from the week.

Updated retail sales statistics are also amongst the standout releases in the US this week. They are released on Wednesday alongside the Federal Reserve’s latest Beige Book, which provides a comprehensive review of economic performance over the past 6 weeks. The US housing sector also comes back into focus with building permits and housing starts covering September published on Thursday.

In the Eurozone, industrial production and the ZEW economic sentiment indicator are the only figures of note. It’s a busy week for Chinese statistics, the most notable being Q3’19 GDP which is released on Friday. Unemployment, retail sales, industrial production and fixed asset investment are also due. There are no major releases from Japan on this occasion.

 

The value of an investment with Rowan Dartington may fall as well as rise. You may get back less than the amount invested. 
 

The value of investments can also fall as well as rise purely on account of exchange rate fluctuations.
 

Past performance is not indicative of future performance. 

Source: FE Analytics (information is correct as at 14th October 2019) 

Source: FTSE International Limited ("FTSE") © FTSE 2019. "FTSE ®" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.  

© S&P Dow Jones LLC 2019; all rights reserved 

The information contained does not constitute investment advice. It is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Full advice should be taken to evaluate the risks, consequences and suitability of any prospective investment. Opinions provided are subject to change in the future as they may be influenced by changes in regulation or market conditions. Where the opinions of third parties are offered, these may not necessarily reflect those of Rowan Dartington.