Financial Perspectives

Normally people move from savings to investment but draw the line at risky investments and don’t consider gambling as being in the same continum.

But it is. Certainly savings and gambling are very much at the extreme ends of that continum but some high risk investments aren’t nearly so far from gambling as the investment community in general would have you believe.

Is it any more risky to put £1 on a horse or to put £1 on a penny share? Well, sure, it’s usually riskier to put it on a horse BUT remember that whilst you might put £1 on a horse, chances are it would be more like £1000 that you’d be putting on that penny share which is a whole lot more to lose.

Of course, that difference in the amount of money involved is critical in how you should rate a gamble as compared to a very high risk investment. However, don’t forget that even the safest investments are also gambles as any investor in Northern Rock will tell you now or for that matter policy holders in what was the even more solid Equitable Life.

Although you’d think that there would be fewer Americans travelling abroad these days with the weak dollar, it seems to be the opposite that’s true. Not only are they travelling abroad more, but they’re considering purchasing property abroad too which is relatively unusual as well.

The dollar makes for a really serious price rise from the American perspective. Take the example of a property notionally priced at €800,000. Not so long ago that would have equated to around $1,000,000 but these days it’s a lot closer to $1,400,000 which is one serious price rise by any measure.

But even on the much smaller scale of vacation spending there’s quite a significant effect on costs if your income is in dollars. Typically this means that Americans on vacation in Europe need to downgrade the quality of accommodation that they use during their travels and we’ve noticed a significant shift towards the use of hostel reservation systems which wouldn’t normally generate much American business.

On the other side of the coin this, of course, means that property in America is pretty cheap for Europeans at the moment and it’s quite common to see American property promoted in European markets currently. If only I’d a few dollars to spare, I’d be quite tempted to buy a vacation rental property over there at the moment as the current strong euro/weak dollar isn’t what one would normally expect ie there’s going to be a swing back the other way in due course.

The actions that the American, British and European central banks have taken have all affected their respective exchange rates of course.

We’ve seen the pound move from a typical $1.50 to more like $2 these days and that’s obviously had quite a considerable effect on international trade between the two countries which has always been substantial. Although it’s clearly an advantage to tourists from the UK going to America clearly the move in the other direction has gone down substantially.

Within Europe the pound has gone from around 60p to the euro to more like 80p for a euro these days which, combined with the dramatic price increases in discount airline flights, has pretty much killed off British tourism in Europe this year.

But the impact on tourism is just one aspect (and a minor one at that) of the impact on the European economy. It might be great for the European tourists to have really cheap holidays this year but if the exchange rate continues at anything like the current level they’ll soon find themselves out of a job as their products are priced out of the range of export markets.