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Category: Money

What is Investment Risk and Why is it Important?

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Defining investment risk might sound simple – it’s the threat of losing money, right?

Well, while potential monetary loss forms the basis of risk, there’s more to the story. Because risk takes many forms in the field of investing, and there are a whole host of threats that are unique to different types of investments.

So, to fully understand the definition of investment risk, you need to consider a broad range of factors. In this guide, while we’re not offering you financial or investment advice, we will show you what investment risk is and why it’s important, before offering some tips on how to effectively minimize risk when investing. Remember, Glint isn’t an investment platform, so we’re able to remain completely neutral on the subject.

Use the links below to navigate or read on for the full guide.

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What Is Investment Risk?

Investment risk isn’t just the threat of losing money. It encapsulates all the factors that can affect your return on investment – whether that’s market conditions, geopolitical events, changing legislation, economic performance, or even things like climate change and extreme weather.

To this end, the consequences of investment risk aren’t purely limited to losing money. From dwindling returns to watching investments fail to grow, the repercussions of investment risk can be detrimental, so it’s important to do everything you can to mitigate risk where possible (more on this later).

To further complicate the issue of investment risk; there’s a fine line between being too exposed to risk and too risk-averse.

Exposing yourself to risk can lead to loss and dwindling returns. But remember, investing is never without risk, so by not taking enough calculated risks, you could effectively weaken your position and potentially lose more money than you otherwise would have.

Getting investment risk right, then, is something of a balancing act. You need to take some risks to ensure you’re not losing out unnecessarily, while also being aware of your limitations and exposure to external forces.

Why Is Investment Risk Important?

Understanding and accepting investment risk is important for several reasons, including:

  • Allows you to set your own risk parameters – knowing the risks you face as an investor puts you in a powerful position wherein you can set your own parameters and level of exposure to risk. For instance, if you’re happy to accept the calculated risk of losing money, you may seek high-risk, high-reward opportunities. If, however, you don’t want to lose any money, this will also dictate the investments available to you.
  • Demonstrates both sides of the investment coin – those new to investing may see some opportunities as overly risky, or even reckless. But with experience and a clearer understanding of investment risk, you can make calculated decisions and avoid allowing an aversion to risk stop you from taking on a project that could prove lucrative in the long run.
  • Shows you which investments may be most suitable for you – when you understand the different types of investment risk, you’ll be better placed to decide on the opportunities that are right for you. For example, typically high-risk investments like cryptocurrencies and commodities may be better suited to some types of investors than others due to the risks involved, while things like bonds and shares may be a good option for the more risk-averse.

What Are the Main Types of Investment Risk?

As an investor, there are two main risk types that you need to be aware of: systematic investment risks and unsystematic investment risks. We’ll cover what these are and their characteristics below.

What is Systematic Investment Risk?

Systematic investment risk generally covers threats affecting the broader economy and market. Often referred to as market risks, these are factors that disrupt economic performance and market conditions, and put the success and returns of individual investments in jeopardy.

Examples of systematic investment risk include geopolitical events, economic uncertainty, rising inflation, and socio-political activity. It can be difficult to avoid and mitigate systematic risk, since they affect the broader market and can directly affect a broad range of industries at any one time.

What is Unsystematic Investment Risk?

 Unsystematic investment risk is any threat faced by an individual industry, sector, or business. These kinds of risks don’t arise from broader market conditions but are instead prompted by industry-specific events and activity. In short, they’re anything that can affect a business’ ability to turn a profit and thus offer a return to its shareholders, including things like:

  • Regulatory changes or legal action
  • A change in management or senior personnel
  • Product recalls or errors
  • Bad PR and reputational damage
  • The emergence of new competitors within the market

Unsystematic investment risk can be damaging, with the potential for investors to lose everything should the outcome be particularly detrimental. However, there are ways to protect yourself against unsystematic investment risk, including asset portfolio diversification.

How Do You Minimize Risk When Investing?

While it’s impossible to remove investment risk altogether, there are plenty of things you can do to mitigate it and protect yourself from financial loss. Below, we offer a few essential tips on how to minimize investment risk.

  • Diversify your investment portfolio – as touched on above, one of the best ways to mitigate investment risk is to diversify your portfolio. The proverb “never put all your eggs in one basket” is perhaps the best way to sum up the benefit of diversification; it’s all about spreading the risk across multiple assets to minimize threats regardless of market conditions.
  • Invest in pooled funds – if you want to diversify your assets with minimal legwork, putting money in a pooled fund can be effective. Essentially, this is when you give a lump sum to a fund manager, who will spread it out across multiple assets to manage your desired level of risk and return.

  • Invest globally – one way to mitigate systematic risk is to invest on an international scale. This means that your money won’t be so easily affected by economic disruption in a single country.
  • Assess your investments regularly – to make sure you’re always hitting the sweet spot between risk exposure and risk aversion, assess your portfolio regularly to see how your investments are performing. If things have slowed, you may consider that it could be time to look at new, potentially riskier options; if there’s trouble brewing in the wider economy, you may choose to dial things back.

 

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.  

While explaining Investment risk, we are giving you the information to help you make up your own mind. Glint does not offer any financial or investment advice and would not ever make a suggestion that you should enter into a situation that would put you or your money at risk. Your money is at risk with all investments.
 
To learn more, visit our homepage or give us a call at +44(0)203 915 8111.

 

8 Alternative Ways to Save Money

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8 alternative savings methods

Amid rising interest rates, soaring inflation, and global economic uncertainty, cash alternatives are proving a popular place for savers to store their money. But which of these left-field savings options provides the best solution? And what risks and rewards should you consider before moving your money?

To help you navigate the often confusing, at times risky world of alternative savings, we’ll look at 8 of the more unconventional ways to save money in 2022.

Please be aware that this is NOT financial advice.

1.    Equities

Equities like stocks and shares remain a popular place for savers to put their cash, and generally speaking, such assets perform better than cash savings over long periods. Of course, there are risks involved in equity investing, so careful research and due diligence are needed before you part ways with your hard-earned savings pot.

Pros

  • On average, equities perform better than cash over the equivalent period
  • You can spread the risk of losing money by investing in a range of equities
  • Potential to make significant earnings on your investment

Cons 

  • Equities are considered a high-risk savings strategy, and you could lose some or all your savings
  • Equities don’t perform as well when interest rates are rising
  • The value of stocks and shares can be influenced by a huge range of forces, making them especially volatile

2.    Exchange-Traded Funds (ETFs)

Those looking to invest on the stock market in a low-risk way should consider exchange-traded funds (ETFs). This is when you effectively invest in a package of stocks across a broad range of industries, providing greater protection should sector-specific crashes affect share prices. A benefit of ETFs is that you can choose your level of risk, so there’s more certainty about retaining overall asset value.

Pros

  • A simple way to invest on the stock market while diversifying your assets
  • A broad range of ETF options means you can choose your level of risk
  • Diversification means reduced risk of losing money

Cons 

  • ETFs carry the same risks as general equities; you could still lose all your money by investing poorly
  • When investing in a gold ETF, the asset is not owned by you but by the trustee.

Looking for new ways to save

3.    Unit and Investment Trusts

Unit and investment trusts are similar to ETFs, with the key difference being that they operate through a trust. The trust or fund manager will pool resources from trustees and invest in well-performing assets, including a mix of bonds, shares, and property funds. Typically, trustees receive a quarterly or biannually income on all earnings made across the portfolio of assets.

Pros 

  • Fund managers typically target well-performing assets
  • Potential to make gains and receive an additional income

Cons 

  • Earnings aren’t always guaranteed, as trusts tend to focus on low-risk assets
  • As with other investments of this kind, there’s still the chance of losing money

4.    Government or Corporate Bonds

Bonds have long been a popular way of storing money with the added bonus of earning interest on the money you lend. Typically, governments or companies request money which you issue to them as a loan, which they then pay back within an agreed timeframe with added interest.

Pros

  • Predictable returns over a set period of time, so you get tight control of your money
  • Lower risk than shares and stocks, particularly when dealing with stable organisations
  • Potential to make sizeable earnings as interest

Cons 

  • If you want to make significant earnings on your savings, bonds may not be the most lucrative option
  • Dealing with unstable organisations carries a risk

5.    Peer-to-Peer Lending

Peer-to-peer (P2P) lending is comparable to bonds with the key difference being that you’re lending money to individuals, and not just governmental bodies and businesses. You can still earn interest on the loans you issue, but there are more risks involved. Peer-to-peer lending is generally managed by P2P platforms, through which you can easily manage different loans and revenue streams.

Pros

  • Potential to make steady earnings
  • Growing number of P2P platforms offers lots of opportunities to invest
  • Most P2P platforms are now regulated by the FCA

Cons 

  • Riskier than bonds since you’re dealing with individual lenders
  • P2P platforms aren’t covered by the Financial Services Compensation Scheme, so you could lose everything if a platform were to collapse
  • Requires careful management, and can be a steep learning curve for those unfamiliar with this type of lending

New saving methods

6.    Crowdfunding

The popularity of crowdfunding has risen astronomically in recent years, and could be considered a high-risk way to put money aside for the future. It essentially involves speculating on new and upcoming businesses and projects, backing them through crowdfunding sites to help them realise their ambitions for growth. Get it right, and it can be one of the fastest ways to grow your money.

Pros

  • Allows you to support the businesses, projects, and initiatives you care about
  • Potential to make sizeable earnings if the company gets off the ground
  • You might receive gifts, products, and early access to new tech by supporting some funds

Cons

  • No guarantee of future earnings
  • Crowdfunding is speculative, so there’s a risk of losing money

7.    Cryptocurrency

Cryptocurrency may remain a volatile and highly divisive asset class, but there’s no denying that these types of digital currencies have made a lasting impact on the economic landscape. If you’re interested in investing in crypto, you need to consider the risks involved and perform the appropriate due diligence before parting ways with your cash.

Pros

  • High risk, high reward savings opportunity
  • Blockchain technology that underpins cryptocurrency is generally very secure
  • Since the value of crypto is based on global demand as opposed to national inflation, it could help you stave off the negative effects of rising inflation

Cons

  • Volatile and highly risky investment, with the potential to lose all your money
  • Not proven as a secure, long-term investment
  • Steep learning curve attached to understanding and investing in cryptocurrencies

Alternative saving methods

8.    Gold and Precious Metals

Gold and precious metals have been used as a means of hedging against inflation for decades, and they are largely considered one of the safest places to store your money in times of economic uncertainty.

Pros

  • Gold and precious metals are among the best lines of defence against inflation
  • Reliable money that will hold its value over time

Cons

  • Gold doesn’t offer the earnings potential of other investment assets
  • The value of gold can go up or down, meaning its spending power could also be worth less.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.
 
To learn more, visit our homepage or give us a call at +44(0)203 915 8111.

What is a Stablecoin and How Do They Work?

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You’ve heard of bitcoin, crypto and blockchain, but what about stablecoin? If you’re unfamiliar with this new, up-and-coming digital currency, it’s high time you studied up to realize its benefits and potential.

To help you get to grips with stablecoin, we’ve put together this need-to-know guide covering what it is, how it works and – most crucially – whether it’s safe, secure, and worth investing in.

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What is a Stablecoin and How Do They Work?

Stablecoin is a digital currency that is backed by assets such as gold and fiat currency. It was developed as a safer alternative to other cryptocurrencies, which have historically been highly volatile and liable to peaks and plummets in value.

While the rise of cryptocurrencies was meteoric, they remain a divisive asset among investors. This is largely due to their instability and unpredictability, which make it difficult for investors to choose the right coin and forecast their expected return.

Stablecoin goes some way to solving this problem, affording investors greater certainty of value. Unlike other digital currencies, these coins are attached to ‘stable’ assets such as gold or fiat money, which means they circumvent the dramatic peaks and troughs in value that other crypto can suffer.

As well as this, stablecoins are also decentralized; they’re not attached to a single organization, system, or agency like other crypto. This affords greater liquidity, simpler access, and enhanced autonomy, so they’re much easier to trade and transfer.

To summarize then, stablecoin essentially bridges the gap between fiat money and cryptocurrency, providing a safer and more attractive prospect for investors. And while it does have its risks and drawbacks (including low yields compared to other crypto), it’s fast becoming one of the most popular ways to invest in the cryptocurrency ecosystem.

What Affects Stablecoin Prices?

Stablecoins act much differently to other cryptocurrencies. Because they’re pegged to fiat money, commodities or physical assets like gold, their price is affected by economic performance, demand for US currency and the current monetary policy of the Federal Reserve.

When looking at the value of stablecoin, it’s worth touching on an important point: the likelihood of making a return.

In the eyes of many investors, one of the key drawbacks of stablecoin is the low rate of return compared to other crypto. This is due to stablecoins being tied to the performance and value of other assets.

For this reason, you shouldn’t see stablecoins as a boom-or-bust investment like other cryptocurrencies. Their stability means they offer a low-risk but ultimately low-reward investment opportunity, with interest the only real way of making money in the long term.

Instead, consider stablecoin a safe jumping-off point into the world of digital currency. With the security of fiat money backing and streamlined accessibility, it affords an attractive means of dipping your toe in crypto without taking a huge risk.

How Safe Are Stablecoins?

In short, very. Not only are stablecoins backed by a combination of fiat money, gold, and commodities, but their value is also monitored and maintained by algorithmic mechanisms, which further enhance their safety and stability.

To put it another way, stablecoins are subject to the same risks as the assets that back them. So, just as the US dollar can rise and fall in line with economic health, so too will the value of stablecoins.

One thing to note, however, is that many people believe you should always look to invest in decentralized stablecoins, and not those linked to a single agency or organization. That’s because they’re much more vulnerable to theft, disruption and interference when stored in a central location, as opposed to being open, global, and accessible.

It’s worth remembering, too, that stablecoins are a relatively new type of digital currency. And given the pace of change within the crypto ecosystem, there may yet be some undiscovered risks associated with this type of coin, so be sure to undertake the appropriate due diligence before you invest.

How is Stablecoin Regulated?

Despite being billed as a safe digital currency, stablecoin isn’t currently regulated in the US and many other parts of the world. This is despite plans to regulate it having reached the halls of Congress, where it is still being debated by members months later.

The issue of regulating stablecoin is a complex one. While many high-profile corporations, including Meta, have come forward in support of regulating the currency, the President’s Working Group on Financial Markets, who are tasked with assessing stablecoin’s viability, have raised questions about what bringing the currency into the mainstream could mean for market integrity and economic health.

It argues that while the majority of stablecoins are claimed to be pegged to fiat money, some are actually backed by other assets, including US Treasury Debt (USD Coin) and Tether, another type of cryptocurrency. This ultimately makes general regulation much more difficult, since there may be huge variances in what different stablecoins are worth at any given time.

So, while stablecoin regulation could well happen, the currency has a few hurdles to overcome before it’s officially rubber-stamped.

Different Types of Stablecoin Explained

As if the world of stablecoin wasn’t confusing enough, there are four types of coins you need to be aware of. We’ve broken these down below.

  1. Fiat-collateralized stablecoins – these are the most prevalent form of stablecoins and comprise of a digital currency backed by a fiat currency like the US Dollar. Since they’re based on real money, they can easily be exchanged and transferred, so they’re among the simplest stablecoins to manage and purchase.
  2. Commodity-backed stablecoins – commodity-backed stablecoins are those backed by assets including gold and other precious metals, as well as things like oil and gas. Though not as liquid as the fiat-collateralized variant, they’re more likely to fetch a higher return since the value of commodities isn’t tied to currency rates.

  1. Algorithmic stablecoins – this is where the world of stablecoin can get confusing. The algorithmic variation is controlled by unique mechanisms that monitor supply and demand, raising or reducing the number of available stablecoins to match. Unlike other stablecoin types, there’s no commodity or cash backing here, so investors are more at risk of sizeable losses.
  2. Crypto-backed stablecoins – backing stablecoins with cryptocurrency may sound counterintuitive, but it’s all about optimizing decentralization. Typically, stablecoins of this type are backed by a combination of cryptocurrencies, spreading the risk while allowing the opportunity to make a greater return on your investment.

We understand that the stablecoin ecosystem can be confusing. But with millions currently being invested into this type of digital currency each year, it’s something many investors are looking to consider in the future.

 

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.
 
To learn more, visit our homepage or give us a call at +44(0)203 915 8111.

Which Investments Are the Best Hedges Against Inflation?

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Inflation has long been a thorn in the side of investors, influencing where they place their money and how much they’ll get in return. The good news is there are ways to combat the negative effects of inflation, and this all starts with hedging.

Hedging against inflation is a sensible option for investors looking to safeguard their assets against loss of value. But how do you do it? And what’s involved?

In this post, we’re looking at the best hedges against inflation, covering what the inflation hedging process involves and the key things to consider. Whilst we are passionate about gold, we’re not involved in investments, so you can rest assured the information here is completely impartial.

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How to Hedge Against Inflation

To understand inflation hedging, you need to be clear on what inflation is and how it can affect the value of an investment. As a quick refresher, we’ve included a definition below, but please skip ahead if you’re already familiar with the term and its implications.

What is Inflation?

 Inflation represents the rate at which the value of a currency is falling, and the price of goods and services is rising. It’s a quantitative prediction that uses price changes over a range of products and services to give an indication of purchasing power within an economy.

So, back to the issue of hedging against inflation. Used by investors, it involves taking steps to protect an investment from the negative effects of inflation – retaining value where possible.

Without diversifying your investments to hedge against inflation, you might see losses. For example, if you’ve invested in something that’s increasing in value by 3% a year but inflation is 4%, you’ll see a -1% decrease in value.

That’s why hedging against inflation is such a popular tactic. It helps to retain the value of your investments even when inflation is on the up.

So, how do you do it?

Essentially, to hedge against inflation, you need to build a diverse investment portfolio that offers fallback against currency value change. That means investing in assets that aren’t easily affected by inflation, and which hold their value even in times of economic uncertainty.

Examples of assets that are typically used to hedge against inflation include gold, silver, and other precious metals, commodities such as oil and gas, stocks and bonds, and other physical assets, including real estate. We’ll look at the best inflation hedge investments in more detail below.

What Are the Best Inflation Hedge Investments?

Diversifying your investment portfolio is good practice for lots of different reasons, not least hedging against inflation. But what assets are best for safeguarding your investments against the effects of inflation?

Let’s take a look.

Gold

Gold is one of the most popular and well-documented inflation hedge investments. Why? It comes down to gold’s reliability and value retention, as well as its resistance to economic shock and uncertainty.

Generally, the value of gold outperforms or keeps pace with the inflation rate, so the risk of value loss is low compared to cash assets. There have been times, however, when the value of gold has fallen out of step with inflation, so it’s by no means a guaranteed silver bullet against future inflation.

Silver

Silver protects against inflation in the same way as gold. Since it’s a precious metal, and thus a tangible, physical asset, it’s widely considered a safe place to put your money when inflation is on the up.

Like gold, however, silver offers no guarantees against inflation. Indeed, the reason gold is often favored is that silver’s value is more volatile, with more external factors affecting its day-to-day price.

Commodities

Commodities like energy, food, and other essential services are rapidly becoming a popular inflation hedge. And when you think about it, this makes sense, because inflation is driven by the rising cost of goods and services compared to purchasing power.

As inflation rises, so too does the value of commodities and the share prices of companies that provide them. So, investing in commodities such as oil, gas or food can be an effective way to hedge against inflation – provided you choose the appropriate goods and services to invest in from the outset.

Stocks

Investing in stocks can be a safe way to protect your money from inflation, but you need to perform the appropriate due diligence and buy into the right businesses. Remember that, as inflation rises, most companies need to increase the retail cost of goods and services, meaning that your investment should, in theory, keep pace with inflation.

That said, there are no guarantees with stocks, and price volatility is much higher than with precious metals like gold and silver. Still, if you invest wisely and are willing to accept the risk of value liquidity, investing in shares can be an effective way to hedge against inflation.

Real Estate

Real estate is another inflation hedge that has proven increasingly popular over the past two decades or so. Given that property prices generally increase when inflation is on the rise, buying domestic or commercial premises is a safe bet to combat value degradation.

Of course, there are lots of ways to invest in real estate, and some (e.g., becoming a landlord) are more hands-on than others. You can invest in real estate without any long-term commitments, typically through a real estate investment trust (REIT) which effectively treats property like a stock or exchange-traded fund (EFT).

 

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.
 
To learn more, visit our homepage or give us a call at +44(0)203 915 8111.

What is Fiat Money? How it Works with Examples

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Have you heard the term ‘fiat money’ but aren’t sure what it means? Perhaps you want to learn the difference between fiat currency and commodity currency?

You’ve come to the right place. In this guide, we’re taking a close look at fiat money to show you how it works, how its value is decided, and how it compares to other forms of currency. Use the links below to navigate or read on for the complete guide.

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What is Fiat Money?

Fiat money is any currency that lacks actual value. Instead, it’s a legal tender issued and backed by world governments.

Historically, the value of currency was backed by physical commodities, such as gold and silver.

It may surprise you to learn that the money in your wallet is intrinsically valueless. It can’t be converted or redeemed into anything tangible and is instead purely used as a mode of payment.

Fiat money relies on tight fiscal control by regulatory bodies, which allow its use in specific territories by government decree. For this reason, it’s vital that fiat money is managed responsibly and ethically, with efforts made to reduce counterfeiting and mismanagement.

The concept of fiat money might sound modern, but it’s been around since at least 1000 AD, when it was first introduced in China. It didn’t, however, become prevalent in the Western World until the 20th century, when countries such as the UK and US began converting the pound and the dollar into fiat-based currency systems.

How Does Fiat Money Work?

As touched on above, fiat money isn’t backed by commodities like precious metals. Its value instead comes from the faith people have in it and the government tasked with regulating it.

One of the key reasons fiat money was introduced in the first place was to increase the liquidity of day-to-day currencies. Modern paper money is designed to offer a simple, flexible way for people to buy and sell goods, without the need for complex trade negotiations.

What’s more, the nature of fiat money allows for greater buying confidence and monetary freedom. For example, if a business wants to expand its operations by investing heavily, fiat money allows for this without the need for physical commodities to be exchanged – helping to accelerate economic and societal growth.

So, how is the value of fiat money controlled and regulated? Because it’s not reliant on a set commodity amount, other factors come into play to decide its value, including interest rates, inflation, and economic performance. Even things like political instability can affect the value of fiat money, which is why people continue to invest in commodities like gold.

In short, fiat money only works if consumers have confidence in it. This relies on responsible management by standing governments, who must also demonstrate creditworthiness and tight regulatory control.

What Are the Pros and Cons of Fiat Money?

Fiat money is now the prevalent form of capital throughout the world. But why is it used? And what are its strengths and weaknesses?

Let’s take a closer look at the pros and cons of fiat money.

Pros

One of fiat money’s key strengths is it’s an asset that’s easy to control and predict – which is crucial in avoiding economic shocks, such as recession.

Remember: governments themselves control fiat money, which gives them more breathing room in terms of supply and value than other forms of currency. Though care is needed, central banks have the power to create more money when market conditions require it, which can help to cushion the economy against periodic fluctuations.

For example, following the 2008 financial crash, fiat money was used strategically to lessen the impact on the US financial system. How??

Cons

Naturally, as with any form of currency, fiat money has its disadvantages, chief among which being the very essence of its value. Those critical of fiat money and successive governments’ reliance on it question how it will maintain its value in the long term, particularly as more cash is brought into circulation.

Unlike commodities, fiat money is backed by nothing other than its perceived value. But what happens when too much money is brought into the economy, and denominations cease to hold the value they once did?

Critics of fiat money suggest that its value cannot be guaranteed in the future. This is in direct contrast to commodity-based money, for which there is a supply of precious metals and other assets that offer the potential for long-term value.

Remember, too, that the supply of fiat money is seemingly unlimited, while reserves of commodities such as gold and other alternatives like cryptocurrencies, are limited. This suggests that commodities are ultimately more stable in the longer term.

Fiat Money Examples

Fiat money has risen to become the world’s most prevalent form of money, and very few global currencies are now true commodity-based currencies. Well-known examples of fiat money include the US dollar, pound sterling, and the euro, with the US, UK and all European nations operating on a fiat-based currency system.

It’s important to note, however, that many countries use a combination of currencies, including fiat and commodity money. This is to offer the best line of defense against economic shock, while maintaining the right level of value and monetary demand.

Why Do Governments Use Fiat Money?

By now you should have a reasonable grasp of the role, advantages, and pitfalls of fiat money. But why exactly has the currency come to dominate the global economic landscape, with most world governments relying on it as a principal form of currency?

Managed correctly, and fiat money serves as a powerful resource for governments, allowing for predictable and tight control of current economic conditions. If it’s utilized responsibly, it provides the very best means of fulfilling the roles of a strong economy, including storing value, providing a means of numerical accounting, and facilitating streamlined exchange.

Most of the problems associated with fiat money arise from improper management and use. For example, if a government prints too much money, quantitative easing, this can lead to hyperinflation, which can be hugely economically damaging in the long term.

For individuals looking to save money and store it somewhere safe, the fiat system may not offer the most secure or profitable conditions. That’s why we’re seeing a rise in currency alternatives – with gold chief among them.

 

We hope this guide has shed light on how fiat currency works and what it means for your money. If you’re looking for a safe, secure, and reliable way to save and use your money, we invite you to discover Glint – the payments platform that enables you to buy, sell, save, and spend real, allocated gold, even at the checkout, on anything from a coffee to a family holiday using your Glint App and Mastercard®.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.
 
To learn more, visit our homepage or give us a call at +44(0)203 915 8111.

US House Buying Index: Which Are the Best States to Own a Home In?

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best us states to buy a house in

As an American, owning property is a realistic expectation. Compared to other developed countries, mortgages in the US equate to a small percentage of monthly household income, so buying a house is a viable option for many.

But that’s not to say that finding an affordable home is easy. Depending on where you live, house prices and lifestyle factors can drive up the cost of owning a home, with some properties beyond the reach of the average worker.

So, where exactly in the US will you find the best value properties? And which states are considered the best places to own a home?

To find out, we analyzed average house prices and sizes in every US state to reveal which offer the best and worst value for money per square foot. Then, we looked at lifestyle factors such as crime rates and living standards, assigning each state a house buying score out of 100.  We used these scores to produce a full state ranking, from best to worst.

Explore the full results of our US house buying study below.

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Key Findings

  • Iowa (79/100 Score) ranked as the best state to buy a house, based on avg. price per square foot, standard of living, mental health ranking and crime rate – while Washington, D.C. (14/100) ranked the worst.
  • The Midwest is the best region to buy in overall based on our index, with 6 of the top 10 states located in this region.
  • The Western States are the worst overall for buyers, with 8 of the 10 lowest-scoring states to buy in located here.
  • West Virginia offers the best house price value per square foot ($71.38), and also has the lowest average house price overall ($122,342) – while Hawaii has the most expensive ($618.46 per square foot) with and smallest houses (avg. 1,309 sq. ft).
  • Utah, Colorado, Wyoming, Montana and Texas have the largest houses, but averaged a standard of living score of 77.3, significantly below the national benchmark of 78.2 – showing that bigger houses don’t always mean a better quality of life.
  • The US comes out ahead of other developed countries in mortgage affordability when weighed against average household income – with monthly repayments being much lower than Canada and Europe.

Where Are the Best and Worst Places to Buy a House in the US?

Property value and living standards vary widely across the US, and these factors ultimately hold sway over the cost of owning a home. So, with this in mind, where is the best place in the US to buy a house, taking into account property price, size, and living standards? Find out below.

 

Offering affordable property per square foot and a respectable standard of living, the Midwest dominated our top 10 list of the best places to buy a house in the US. States such as Iowa, North Dakota, Wisconsin, and Minnesota also scored well for their low crime figures, driving their house buying scores well above 70/100.

Elsewhere, Connecticut and Pennsylvania proved the best places to buy on the east coast, with each offering a great standard of living and affordable property prices compared to neighboring states. Interestingly, no west coast states made the shortlist, suggesting that house buyers seeking affordability shouldn’t venture further west than the Dakotas.

Thinking of buying a property on the west coast? You may face slim pickings. States such as Oregon (23/100 Score), California (26/100), and Nevada (31/100) all appeared in the worst 10, with western regions accounting for eight of the 10 locations at the bottom of our US house buying index.

From a monetary standpoint, those hoping to buy in the DC area face some of the highest costs of any prospective homeowners in the US. Here, the average price per square foot stands at $481.79 – 123% higher than the equivalent property in Iowa.

Indeed, Washington DC performed poorly throughout our index, with high crime rates and an average standard of living driving its overall score as low as 14/100. This is a stark contrast to neighboring Pennsylvania, which scored a respectable 69/100.

And for those dreaming of packing up and moving to paradise, it’s worth acknowledging Hawaii’s appearance on our top 10 list of the worst states to buy a home in the US. The Aloha State has the highest average price per square foot of any US territory, so don’t expect a steal if you’re considering a move to the Pacific archipelago.

Interested in our full ranking? Explore our full index below to see how your state scored.

House Price vs Size: Which States Offer the Most House for Your Money?

Putting aside location and lifestyle factors, which US state offers the best house-to-money ratio? To find out, we compared the average price per square foot of properties across all 50 states. See how they stack up below.

us states by house price map

Is affordability at the top of your house-buying wish list? Then West Virginia ought to be a part of your search. The state offers the best value house prices per square foot ($71.38) in the US, while also having the lowest average house price overall at $122,342.

Elsewhere, houses in Hawaii are the most expensive in the US per square foot ($618.46), and the smallest, at just 1,309 sq. ft on average. By contrast, the average American house size is 1,760 square feet.

us house price vs size

Putting this in perspective based on average pricing, you could buy six houses in West Virginia (where the average price is just $122,342) for the price of just a single house in Hawaii (avg. $809,570) or California (avg. $727,370).

House Sizes and Living Standard: What’s the Link?

Our research revealed that states with the biggest house sizes had a lower-than-average standard of living, showing that these two factors are not as closely linked as some might think.

Utah, Colorado, Wyoming, Montana, and Texas are the states with the largest house sizes, but averaged a standard of living score of 77.3 – below the national standard of 78.2 across all states.

So, before you base your house-buying search on size and money alone, it’s certainly worth weighing up the living standards and lifestyle factors associated with individual regions.

How Affordable Are US Houses Versus Other Countries?

To understand how the US ranks for affordability when buying a house, we analyzed monthly mortgage repayments as a percentage of household income across a range of developed countries from around the world. Find out how the US compares in our chart below.

Rank Country Mortgage Cost (% of Household Income)
1 United States 28.53
2 United Arab Emirates 32.39
3 Denmark 39.54
4 Cyprus 40.74
5 Belgium 41.72
6 Netherlands 43.42
7 Republic of Ireland 44.76
8 Finland 45.4
9 Switzerland 47.48
10 Sweden 49.6
11 Iceland 49.88
12 Australia 50
13 Canada 51.03
14 Italy 51.43
15 Norway 52.05
16 Latvia 52.08
17 Germany 53.11
18 Spain 54.72
19 New Zealand 57.33
20 France 57.37
21 Estonia 58.91
22 United Kingdom 59.56
23 Japan 63.22
24 Slovakia 63.85
25 Austria 65.04

 

While mortgage affordability is a hot issue in the news, the US came out on top, with 28.53% of household income going towards mortgage repayments each month on average – followed closely by the UAE with 32.39%.

Mortgage repayments were much more affordable for US households in the context of total income versus many European nations – and equated to around half that of Canada and the UK.

List of Data Sources

A list of data sources used to create the index and rankings for this research can be found below:

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.
 
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The UK’s election – the good and bad

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It’s nearly Christmas, and no-one is more closely associated with Christmas in British minds than the 19th century author Charles Dickens. The story of how Ebenezer Scrooge is transformed from grumpy miser to warm-hearted dispenser of largesse to the poor and needy is regularly trotted out at this time of year. The new Prime Minister is promising largesse on the grandest of scales

But a more relevant Dickens’ novel for the UK right now is The Posthumous Papers of the Pickwick Club, and in particular the episode which shows Mr Pickwick at the parliamentary by-election in the fictitious borough of Eatandswill.

The Eatandswill by-election is fought between Horatio Fizkin and Samuel Slumkey. They slug it out in a drunken, brawling semi-riot, in which they try to outdo one another in the promises they make to the electorate.

Which sounds familiar.

The UK now has a strong Government, one with a handsome 80-seat overall majority. The 2 ½-year paralysis over Brexit will shortly be in the past, although much remains in doubt concerning the precise relationship between the UK and the European Union. That is surely good news, as everyone is by now weary of the seemingly endless wrangling over should we leave or should we stay.

On the news of the Conservative Party victory, the Pound Sterling went to its best level against the US Dollar since May 2018; it recorded a three-year high against the Euro. The Gold price slumped, losing more than 40 Pounds per ounce, although it has since recovered much of the lost ground. Yet those immediate variations in the value of the Pound and Gold tell us nothing about the more long-term consequences of the Conservative victory.

The Prime Minister, Boris Johnson, is fully aware that he owes his success to the mass defection of former Labour Party supporters to his own Party – they have “lent” his Party their votes, he acknowledged. He is also aware that if he is to have a chance of staying in office following the next election – due in five years, currently – then he needs to pay some interest on this ‘loan’. Johnson will show his thanks by lavishing £100 billion over the next five years on roads, railways and other infrastructure projects.

Where will the money come from? It will be borrowed. The Conservatives hope to run a surplus of £5.3 billion by 2022-23 but the margin for error is wafer-thin.

Having a large Parliamentary majority is good and bad news. It means the Government can get things done. But it also means that it can, in the process of earnestly paying interest on the loaned votes from the North and Midlands, previous Labour strongholds, be extravagant, throwing borrowed money at projects which may or may not satisfy the voting public. In one sense the large Conservative Party majority has removed uncertainty; but the sheer size of that majority inevitably means that the uncertainties are merely pushed out to the longer term.

The UK’s national debt is currently around £1.8 trillion, the annual servicing of which takes about 8% of government tax income. Piling on more debt may be politically necessary, but economically it is a high-risk venture. The additional £100 billion in capital expenditure will amount to an approximately 25% gross increase in public sector spending – a level that has not been seen since the early 1980s.

So today’s austerity today will soon be over. But it may mean that, unless the economy starts to charge along at a more rapid speed than has been seen recently, there could be much worse austerity tomorrow. The Eatandswill voters got Slumkey or Fizkin – it doesn’t really matter. They were not noticeably happier and more content, in any case.

The US Federal Reserve and Inflation

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One of the numerous tasks of the US Federal Reserve – America’s central bank – is the maintenance of stable prices. The last few chairmen (and one woman) of the Fed have had a fairly easy job when it comes to keeping prices (inflation versus deflation) on an even keel. You have to go back almost 30 years, to 1991, to find the US inflation rate nudging above an annual 4%. Since that year it has occasionally crept above 3% but has generally been much lower.

Since the mid-1990s the Fed has ‘targeted’, i.e. aims to achieve, an annual rate of 2%, but this year US inflation is likely to be around 1.75%. Any change in this policy is rather unusual. It might have reverberations around the globe; for, as US interest rates go, others tend to follow.

Maintaining stable prices in an economy the size of the US – the world’s biggest since 1871; this year its gross domestic product (GDP) is likely to be more than $21 trillion –inevitably is a herculean task. No-one really manages this outsize octopus: it manages itself. With regards to stable prices, all the Fed can hope to do is to stop it from keeling over into runaway inflation on the one hand, or collapse into deflation on the other. The Fed, of necessity, needs a sensitive touch on the tiller.

For most of us that light touch manifests itself through Fed’s changes to US interest rate policy – pushing rates higher when the economy seems likely to overheat, or lowering them when it seems in danger of stalling. That’s been its conventional wisdom for what seems like forever, perhaps since 1913, when President Woodrow Wilson signed the law that established the Federal Reserve System. So the news that the Fed is considering relaxing its 2% target for inflation might turn out to deserve much more attention than it has so far received. As often the case, central bankers prefer euphemisms to disguise hard truth; so the Fed say it is thinking about what it calls a “make-up strategy” rather than simply saying ‘we’re going to abandon the 2% target’, and it is easing market acceptance of this by careful news management.

This abandonment of the 2% target has been floating around the think-tanks of Washington D.C. for some time. In June 2018 the Brookings Institution published a paper on this topic, which ended by rhetorically asking “wouldn’t a little higher inflation be nice for everyone?” It all depends on what is meant by a “little”. Not the kind of inflation that happened in Hungary in 1946, where prices doubled every 15 hours; in August 1946 the total value of all Hungarian banknotes in circulation was worth one-tenth of a US penny.

President Gerald Ford gave away lapel badges in the mid-1970s with the slogan ‘WIN’ – which stood for “whip inflation now” – when inflation was running at around 6.5%. But today, with unemployment the lowest it has been for decades, the printing of money, and extremely low interest rates, inflation seems like a thing of the past, like a dead dinosaur. The big worry right now for the Fed (and the European Central Bank and most other central banks too) is deflation. Deflation shrinks consumer demand, which can lead to lower prices, companies going out of business, trading collapses…pretty soon a deflationary economy starts to resemble Japan’s “lost decade”. In Japan, more than 20 years of zero interest rates has still failed to push annual inflation up to 2%: all kinds of odd suggestions are now being made, such as the abolition of cash.

One can sympathise today with the US Federal Reserve; indeed with all central bankers. They have tried just about every trick in their books to steer their national economies towards growth rates above a couple of per cent – low to negative interest rates, money-printing, and even using the central bank to buy shares in publicly traded companies, in the case of Japan. All this has been to no avail.

As central bankers fret, however, the risks of them falling prey to extreme temptations become ever greater. Abolishing cash sounds crazy right now, but who knows? The idea of developing national digital currencies and giving this ‘stable money’ to households, on condition that it is spent, not saved, would certainly spur inflation – but the law of unintended consequences might well come into play.

Perhaps all that can be safely said is that with each passing day the uncertainties are increasing; who would have imagined that the Fed would drop its once-iron rule of targeting 2% inflation. In this scenario it seems logical that people are increasingly thinking of holding more gold, valuing its certainty in the swirl of growing certainty.

Central banker wants digi-money

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In these times of crypto-currencies and digital money, a little bit of historical knowledge is worth a lot – it can save you time wasted on reading stuff like this. It’s a piece from the Financial Times of 1 July by one Jean-Pierre Landau, who – we are told – is “a former deputy governor at the Banque de France” and “a senior research fellow at Harvard Kennedy School”, just the kind of bien-pensant figure so loved by the paper.

Landau spends 663 words telling his readers that central banks should start issuing their own digital currencies, which as far as daft ideas go really takes first prize. He even comes up with a name for it, the “Central Bank Digital Currency” or “CBDC” for short. That’s the kind of zippy, catchy, instantly memorable name one expects from a former central banker.

Of course it won’t happen – at least, not just yet. The degree of cooperation required between central bankers of different national jurisdictions would be beyond the egos of just about all of them.

And in any case it’s a daft idea – it would not bring greater stability to the financial system, just increase its complexity a notch or three. The proposal is that the CBDC “should be as close as possible to cash.” In other words, it’s about protecting the control of the state over money and batting away the ever-encroaching threat of the private sector, which wants to take control over money into private hands.

This state versus private capitalism is not the battle that should worry us. It’s the fact that both the state and private capital are not really interested in protecting the value of our money.

For some sanity it’s worthwhile downloading (for free here) a copy of a now largely forgotten book titled Gold I$ Money (sic) edited by Hans F. Sennholz and published in 1975. It’s a collection of nine essays, all of them interesting, but the one by Henry Hazlitt – To Restore World Monetary Order – could almost be Glint’s strapline.

Hazlitt opens his second paragraph with a sentence that echoes through the ages: “Nobody seems quite sure what any currency will be worth tomorrow.” Late in his essay he turns to David Ricardo, the 19th century political economist, for a quote that’s as true today as ever: “Experience, however, shows that neither a State nor a Bank ever have had the unrestricted power of issuing paper money without abusing that power; in all States, therefore, the issue of paper money ought to be under some check and control.” As Hazlitt says: “It is not gold that carries some irrational mystique, but paper money. The mystique is the naive assumption that we can trust politicians or bureaucrats to issue paper money without their grossly abusing the power to do so.” It is because States and central bankers – governments – cannot be trusted with the money supply that we need to get our own, personal, gold standard.

In 1973, when the bulk of Sennholz’s book was being written, much of the industrialised world was going through stagflation. The world felt then like a very grim place, with monetary chaos matched by international sabre-rattling and outright war in Vietnam. Sennholz, in his epilogue, was pessimistic about the future and considered that “we seriously doubt that the American people will soon regain this right to gold as money.”

If only Sennholz could have been alive today – he died in 2007 age 85. He no doubt would have been delighted to see that people everywhere now have both the right and the opportunity to use gold as money. We think he would have been first in line to download and us the Glint app. Get rid of those value-of-money worries: download the Glint app, register today and find out how easy – and useful – it is.

Gold for Stocks: For real or another false dawn?

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A month ago, here at Glint Perspective, we wrote about a potential time for rotation from stocks into gold.

Since then stocks have fallen over 6% and gold is up 3.5%. The chart below shows this clear inverse relationship and how it has played out over the last month since our article.


Arguably, both can attribute their moves to the trade war threats. There are serious concerns over the US-Chinese trade tensions along with Washington’s threat of tariffs on Mexico that will have implications for the global economy. This move that we have seen in gold over the past month may well be based on a simple concept of ‘flight to safety’. Tensions were not helped over this past week when the two giant political states clashed when they met in Singapore. The global market has become jittery as Mexican Foreign Minister Marcelo Ebrard suggested that the threat of punitive tariffs on Mexico would be devastating. Any comments concerning US growth slowing down further forces investors into a risk-off mentality.

When you look at the markets and the more you read, it seems as though people are not willing to listen to any worries on the fragility of the global economy or there are far too many blind-optimists who seem to think that because something bad has not happened yet, it never will. A 1914 mentality in our books.

Of all the charts and tables that haunts us, the Hussman MAPE stands out. We are higher in US stock valuations on nearly every metric than ever in history and a 60% decline should be seen as a typical mean reversion probably in next 18 months. It staggers us that people think that other ‘cheaper ‘ stock markets are immune when historic correlations to US equity declines are nearly 100% on most observations with a beta at best 1:1 as the table shows.

So, if all stock markets in the world collapse, at least to the same decline of the US market, how badly will investors fare everywhere. All we see, is complacent long assets and fund strategies that have worked in the last ten years, more often than not because of the short volatility aspect.  We don’t meet many people at all who have large portfolio allocations in short selling funds, for the obvious reason, they have not worked that well.

As the central bankers have continually flooded the system with liquidity at every turn, the biggest problem that has happened is the debt-to-GDP ratios soaring. We all know Japan’s ratio is 250%, US, and most countries are over 100%, and if China actually counted correctly, it might be 300%!  No one knows what the actual tipping point could be, but it is coming and nearly every strategy pursued by investors and wealth managers will have the largest drawdown in history.

Gold and other precious metals are severely unloved, and we can see this through the low COT levels. The COT (Commitment of Traders) data helps investors to understand the market dynamic within a particular market. This data provides a breakdown of the open interest for futures and options markets. This information is based on the position data supplied by actual traders (producers/ merchants /processors/users). Usually using this information, we look to understand the relationship between hedgers and speculators to help ascertain whether the underlying asset is over or undervalued. For both gold and silver the net position as % of open interest levels are significantly low, demonstrating how unloved these assets really are at the current time.

Time and time again, seasonality has shown itself to be a powerful force within the gold market. As we move into the summer period, gold’s positive seasonality shows up noticeably. Coupled with a low COT and wavering stock market, moving some of your hard-earned wealth into gold may be a very wise move.

Protect your assets and purchasing power now.  Buy gold through the Glint app.