Albrata finance

Stocks have gained for a number of reasons this year, including a strong second-quarter earnings season, improving economic data, and prospect for tax cuts, which if enacted is expected to be beneficial for corporate profits and share prices.

Those are all obvious tailwinds, but another major factor has a more complicated relationship with the economic environment. The U.S. dollar DXY, -0.02%  has trended lower throughout the year, down 8.6% in what could be its biggest annual decline since 2003. A weak dollar tends to benefit stocks, especially large multinational companies, which see their profits erode in periods of dollar strength due to currency headwinds. Such global stocks, including Apple AAPL, -0.65%  and Boeing BA, +0.12% have been among the market’s leaders so far this year.

The dollar’s weakness in 2017 could mean that Wall Street’s records are just “a domestic perception,” according to Robert Michaud, chief investment officer at New Frontier Advisors.

“While the market has risen year-to-date, the dollar has fallen relative to other currencies. Therefore, international investors may not perceive the U.S. at a market high,” he wrote in a research report. He added that on a dollar-adjusted basis, the S&P 500 was “significantly below” a high hit in the first quarter of the year, even as the unadjusted benchmark has trended higher, as seen in the following chart, provided by New Frontier Advisors.

“From a purchasing power perspective, the U.S. stock market peaked at the beginning of March,” Michaud wrote. “This calls into question how much of the recent rise of the stock market is associated with expectations of future growth and the health of the economy. The global economy is not valuing the U.S. equity market as much as the market high would suggest.”

The dollar’s decline this year has been particularly pronounced against the euroEURUSD, +0.0935% which has benefited from improving economic data throughout the eurozone. Separately, some analysts said the dollar’s rally in the immediate aftermath of President Donald Trump’s election had been overdone.

The buck has shown a modest recovery over the past month, having risen 2.8% since an intraday low hit on Sept. 8, which represented the lowest level for the currency since January 2015.

It’s easy to get lulled into complacency by synchronized global growth, easy financial conditions and super-low economic and financial market volatility. Yet, while the current macro environment and outlook appear better than many of the younger market participants can remember, the last time a similar combination prevailed was in 2006 — and that didn’t end well.

Eleven years on, we don’t think another major financial crisis is likely over our cyclical horizon spanning the next six to 12 months. However, then as now, when the macroeconomic environment is as good as it gets and valuations are tight, it is time to emphasize caution and capital preservation.

Looking on the bright side, our baseline economic forecast is for a continuation of synchronized world real GDP growth at a decent 3% pace in 2018 (the same as this year), low near-term recession risks, a moderate pickup in underlying inflation in the advanced economies, mildly supportive fiscal policies and an only gradual removal of monetary accommodation. Political risks emanating from nationalist/populist movements look more contained for now, particularly in Europe, partly as a function of better economic growth. Moreover, China may well be successful in continuing to suppress volatility well beyond the 19th National Party Congress in October.

So, if you want to stay or become a bull on risk assets, all of this seems like good macro fodder.

The ABCs of caution

and upset the eerie calm in financial markets. Apart from the obvious geopolitical threat emanating from North Korea, the most important macro uncertainties — “the ABCs of caution” — are the aging U.S. economic expansion, the coming end of central bank balance sheet expansion, and China’s political and economic course following the party congress.

On aging, as the U.S. expansion matures and slack in the labor market keeps eroding, we expect GDP growth to slow to a below-consensus 2% or less and core CPI inflation to pick up to 2% in the course of 2018. Thus, the mix of nominal growth between real growth and inflation will become less favorable as disappearing slack makes it difficult to sustain the current pace of job and output growth.

True, an acceleration of productivity growth would help, but doesn’t seem to be in the offing as business investment outside energy remains moderate. A Federal Reserve that is fixated on the Phillips curve will likely raise the policy rate two or three times between now and the end of 2018 – less than the four hikes the Federal Open Market Committee currently foresees but more than the extremely shallow rate hike path that markets price in right now. Thus, the front end of the U.S. yield curve looks vulnerable.

Regarding central bank balance sheets, the market has so far taken in stride the Fed’s plans to begin the process of normalizing its balance sheet in October as well as the European Central Bank’s hints at tapering its bond purchases next year. But don’t forget that there is virtually no historical precedent for major central banks actively reducing their balance sheets. Thus, the impact of the Fed’s balance sheet unwind on the term premium and other risk premiums is unknown, especially as it will coincide with a period of uncertainty about the future Fed chair and the composition of the Board of Governors. This is one reason for us to be slightly underweight duration and to expect a steeper yield curve.

As regards China, our debates centered on the implications of the more centralized and concentrated leadership that is likely to result from the party congress in October. One view is that the new/old leadership will focus on further suppressing economic and financial volatility through a combination of continued leverage expansion, financial repression including tight capital controls and imposition of supply discipline in commodities industries. If so, unlike in 2015–2016, China wouldn’t be an exporter of volatility to global financial markets.

While this is a possible outcome, another distinct possibility is that the likely consolidation and concentration of power opens the door for significant and surprising policy changes, including major reforms affecting state-owned enterprises and forced deleveraging, which would weigh heavily on growth and could lead to more tolerance for currency depreciation. This could potentially be signaled by a highly symbolic shift, such as the leadership dropping the growth target. Such changes, or the fear thereof, have potential to disrupt global markets.

In addition, a more assertive China in foreign affairs under a “paramount leader” President Xi Jinping raises the risk of an escalating trade conflict in case the U.S. administration decides to get tough on trade policy.

Around the globe in 5 minutes

Here’s our 2018 outlook for the major economies:

U.S.

We expect GDP growth to slow to a below-consensus 2% or less, albeit still above trend, and we see core CPI inflation picking up to 2% in the course of 2018. While secular forces like technology, globalization and slow productivity growth have flattened the Phillips curve, we expect some cyclical upward pressure on wages as slack erodes further. Disappearing slack should also make it difficult to sustain the current pace of job and output growth. We don’t expect a significant acceleration of productivity growth, either. The Fed will likely continue along its trajectory of gradual tightening with two or three rate hikes between now and the end of 2018.

Note that in our base case, we expect a small tax cut (rather than a major tax reform) worth about $500 billion over 10 years, which is too small to move the needle on growth. Hopes for a bipartisan tax deal are likely to be disappointed as Democrats and Republicans seem too far apart on tax issues.

Eurozone

The eurozone economy is likely to grow by an above-consensus 2% in 2018 and thus significantly above trend, but past labor-market reforms, persistent competitiveness gaps between eurozone member states and the euro’s appreciation suggest that core inflation will make only moderate progress toward the ECB’s target of “below, but close to, 2% over the medium term.”

Still, technical and political constraints will induce the ECB to gradually taper its bond purchases in the course of 2018, while keeping policy rates at record lows until well into 2019 and thus for longer than markets price in.

A key risk for the outlook is the Italian elections in the first half of 2018.

 However, the political risks look more contained as the euroskeptical parties in Italy have toned down their anti-euro rhetoric (Italexit doesn’t seem very popular with Italian voters). Also, elections in France and the Netherlands earlier this year have seen limited success versus expectations for more extreme positions on euro membership.

U.K.

We expect growth to remain at current levels of around 1.5% for the balance of 2017 and into early 2018. Our base case expects a transitional arrangement to smooth the U.K. separation from the EU. If this happens, we expect growth to reaccelerate as business confidence picks up and some pent-up business investment is approved. We also see some scope for a pickup in government spending after seven years of austerity. Our U.K. growth forecast is in line with the consensus for 2017 and above for 2018.

We see inflation returning to the 2% target by the end of 2018, earlier than both the consensus and the Bank of England. We believe all of the rise in U.K. CPI so far this year can be attributed to the fall in the British pound GBPUSD, +0.4109% after last year’s Brexit vote. We expect the upward pressures from import prices to fade over 2018, and with few signs of second-round effects in domestically generated inflation, we see CPI back to target by the end of 2018.

In our base case we expect the BOE to start raising interest rates in 2018, although given the recent hawkish tone there is a risk of a hike in 2017. We expect to see one or two interest-rate hikes by the end of 2018, with risks evenly spread around the central forecast.

Japan

We expect real GDP growth to moderate somewhat in 2018 but remain above trend, reflecting ongoing fiscal and monetary support as well as decent global growth. Core CPI inflation should creep up toward close to 1% in the course of next year as wage growth accelerates, but the 2% inflation target remains out of reach for the foreseeable future. Still, with some progress on the inflation front, we look for the Bank of Japan to nudge its yield target for 10-year Japanese government bonds 20 to 30 basis points higher from the current level of 0% in the second half of next year.

A key potential swing factor for the economic and market outlook will be the political future of Prime Minister Shinzo Abe a

In our base case, we expect Abenomics to prevail even under a potential new prime minister and/or central bank governor. However, there is a distinct risk that a new leadership might shift toward tighter fiscal policies and a normalization of monetary policy.

Our base case sees growth decelerating further in 2018 from the current 6.6% pace, with our (unusually wide) forecast range centered around 6%. Uncertainty about the leadership’s prospective stance on financial stability, deleveraging and economic growth following the party congress in October is unusually high.

As we noted above, one possible scenario is that the new/old leadership will focus on further suppressing volatility via continued leverage expansion, financial repression and imposition of supply discipline in commodities industries. If so, growth could hold up at around the current pace.

Another scenario is that the likely consolidation of power creates opportunities for significant policy pivots, including major reforms in state-owned enterprises and forced deleveraging. These changes would tend to weigh heavily on growth (pushing it to below 6%) and could lead to greater tolerance for a depreciating Chinese yuan. In this scenario we could see a highly symbolic shift, such as the leadership dropping the growth target.

Investment implications

In an environment in which the macro climate is about as good as it is going to get and where valuations are tight, we will emphasize capital preservation in our portfolios. The considerable uncertainty in the outlook, including the aging U.S. expansion, tapering of central bank balance sheet support and China-related risks we think necessitates generating income and grinding out alpha with a broad set of small trades rather than taking large concentrations in generic corporate credit.

While the baseline for the Fed’s balance sheet unwind and the ECB’s ongoing tapering — and broader central bank tightening — should be broadly priced in, the fact remains that full valuations and low volatility leave little margin for error. In the later stages of the corporate credit cycle, as active managers, we think it makes sense to emphasize portfolio liquidity and to avoid less liquid positions as a rule and focus on those bottom-up opportunities where we are truly paid for the risk.

Equities

In asset allocation portfolios, we expect to be broadly neutral on equities and commodities. Global equities have had a good year supported by a robust synchronized recovery in earnings. While fundamentals at the global level broadly underpin performance, valuations are full. Japanese equities stand out, screening as relatively “cheap” among developed markets, with the possibility of earnings upside versus relatively subdued expectations.

Commodities

Some market participants, however, make the case that despite its roughly 260% year-to-date rise BTCUSD, +1.82% it has to clear a far more stratospheric value hurdle to evolve into a practical form of money alongside fiat units like the U.S. dollar DXY, -0.23% Europe’s Euro  EURUSD, +0.2265%  or British pound GBPUSD, +1.4480%

Still, a bitcoin would need to be worth a stunning $1,000,000 to be a bona fide monetary unit, says Iqbal Gandham, U.K managing director at eToro, a trading platform.

In other words, the digital currency would need to see a 300 fold run-up from its current level. To be sure, Gandham isn’t making a prediction; though he believes the currency has the ability to scale such lofty levels, Gandham thinks that bitcoin needs to climb to such a level to be truly viable as a monetary unit.

To understand why is to understand the tiniest component of bitcoin—the Satoshi. Named after the purported creator of bitcoin, Satoshi Nakamoto. A Satoshi is equal to 0.00000001 bitcoin.

Put another way, one bitcoin contains 100 million Satoshis.

Satoshi’s value in dollars equated to $0.0000356819 at last check. Gandham argues that a Satoshi needs to be equivalent to a single penny, which it would when one bitcoin is worth $1,000,000.

“It is the Satoshi with which people will buy a cup of coffee,” Gandham told MarketWatch. He said using bitcoin now to purchase goods and services, as one would with dollars, isn’t feasible because bitcoin hasn’t reached the necessary economies of scale.

“People don’t use a bar of gold to buy things, they use subdivisions of gold,” he said, saying that using bitcoin now to purchase items is like using a bar of gold to purchase a beverage or a meal.

Gandham also said bitcoin really needs to get to that million-dollar mark in the next few years. Some are already wagering that it will get close: John McAfee, founder of his namesake antivirus software company says bitcoin is headed to the $500,000 level within three years.

“It needs to get there in the next few years if it is really going to work,” Gandham said. “People will only spend the subdivision of bitcoin—and you can only spend the subdivision—if they are of reasonable value,” he said.

Bitcoin has been in the buzzy consciousness of average folks for the better part of the past decade. Created at the height of the financial crisis, it has emerged for some as among the clearest alternatives to government-backed currencies.

Bitcoin bulls argue that much of the modern currency world is a product of a manufactured economy, in which central banks print money to boost economic growth, putting bitcoin and other digital currencies, like Ethereum, in position to be considered on par, if not better than, their fiat counterparts in terms of their economic utility.

Against the backdrop of easy-money policies, the Dow Jones Industrial AverageDJIA, +0.29% the S&P 500 index SPX, +0.18%  and the Nasdaq Composite Index COMP, +0.30%  are all at their highest levels in history, while the 10-year Treasury note TMUBMUSD10Y, +0.76% with prices moving inversely to yields, seeing yields near historic lows.

TOKYO — The Bank of Japan left policy unchanged Friday, maintaining its aggressive monetary stimulus aimed at lifting inflation, which continues to show weakness despite brighter spots elsewhere in the economy.

The decision reaffirming the central bank’s ultra-easy stance comes less than two days after the Federal Reserve raised interest rates for the third time in six months despite renewed weakness in U.S. inflation. The Fed also gave more details on how it plans to trim its balance sheet, a topic that Japan’s central bank is gradually starting to talk about after months of insisting that it was still too early to discuss.

The BOJ board voted to keep its target for 10-year Japanese government bond yields at around zero and a shorter-term interest rate at minus 0.1%, as widely expected by economists.

The bank also reiterated that it would continue to buy government bonds at an annual pace of about ¥80 trillion ($720 billion). Controlling short- and long-term interest rates has become the bank’s principal policy tool since a revamp of its measures last September, but the passage on its bond purchases is seen by investors as a symbolic gauge of the bank’s commitment to its easing policy. The actual rate of purchases has fallen well below the ¥80 trillion annual pace in recent months.

Co-founder, Bill & Melinda Gates Foundation

Net worth  $86 B

From his perch atop the world's largest private charitable foundation, Bill Gates keeps pushing to save lives in the developing world through efforts to eliminate polio, attack malaria and expand childhood vaccinations. The Bill & Melinda Gates Foundation is also working to improve K-12 education in the U.S., an area in which it's had fewer tangible results.The richest person in the world for 18 out of the past 23 years, Gates stepped down as Microsoft chairman in 2014 but remains a technology advisor and board member of the company he cofounded in 1975. Gates sells his Microsoft shares on a regular basis and now owns 2.3% of the company, which in turn accounts for 13% of his fortune. He also has investments in Canadian National Railway, tractor maker Deere & Co. and car dealer AutoNation. In December 2016, Gates announced the creation of a $1 billion Breakthrough Energy investment fund with about 20 other people - including Amazon.com CEO Jeff Bezos and Alibaba founder Jack Ma - to invest in new forms of clean energy.

Some homeowners have reason to celebrate feeling “blue.”

Homes with blue bathrooms — specifically light shades like powder blue or periwinkle — fetched $5,400 more than expected when sold, according to a paint color analysis from real estate website Zillow. The analysis looked at more than 32,000 sold homes, comparing the sales prices of ones painted certain color versus similar properties that had white walls.

Blue paint isn’t just effective at boosting a home’s selling price when used in a bathroom though. Dining rooms painted in darker blue hues will cause a house sell for $1,926 more than anticipated on average, while homes with light blue kitchens and blue bedrooms will garner a price that is $1,809 higher than expected.

Other colors that increased home prices included grays and beiges. “Painting walls in fresh, natural-looking colors, particularly in shades of blue and pale gray not only make a home feel larger, but also are neutral enough to help future buyers envision themselves living in the space,” said Zillow chief economist Svenja Gudell in the report.

But not all paint colors have this positive effect on sales prices. For instance, a brick red dining room will slash a home’s price down by more than $2,000 versus what was expected. Other ill-advised paint choices — at least where a home’s value is concerned — included yellow, pink and brown.Where a paint color is used is also important. While blues may wow in kitchens and bathrooms, when used in a living room it decreased home prices by $820 on average.

For a prime minister with little experience of the City or financial markets, Theresa May has been a boon for the pound in 2017. In January her first big speech on the government’s Brexit strategy sent the currency up 3 percent against the dollar in a single day. Underlining how the market was warming to her premiership, sterling jumped 2 per cent on April 18 when she called the snap election. However, the confidence that Mrs. May has inspired in currency traders and investors for much of this year has been hurt by a bruising election campaign, prompting foreign exchange currency strategists to speculate on what a coalition government or even one led by Labour leader Jeremy Corbyn might look like.

While polls suggest that both prospects remain remote, the question now facing investors is whether their longstanding assumption that the election will strengthen Mrs. May’s hand in the upcoming Brexit negotiations still stands. The Conservatives ended the last parliament with a majority of just 17 and some pollsters had estimated it could increase to as much as 100 in next week’s election.

Investors had assumed the election was a done deal and was going to deliver this stunning majority,” says Chris Turner at ING. “But the polls have pulled the carpet from under their preconceived notions.” A torrid couple of weeks of campaigning for Mrs. May, including a damaging U-turn on a flagship social care policy, have seen the Conservatives’ lead in the polls whittled down — or even wiped out if controversial modelling released on Wednesday by pollster YouGov turns out to be accurate. That helped drive the pound briefly below the $1.28 mark on Wednesday. The pound is the second-worst performing major currency against the dollar in May and has fallen more than 3 percent against a resurgent euro as the euro zone economy shows increasing vigor. It is a far cry from the April day on which the prime minister’s surprise decision to seek her own mandate from voters was quickly followed by polls putting Labour at least 20 points behind.

They don’t spend everything they earn.

“Most people make a living, spend what they feel they need to enjoy their lives and then dutifully save what is left. Unfortunately, that’s often little or nothing,” says Steve Martin, a Certified Financial Planner and senior managing director at BKD Wealth Advisors in Chicago. “Successful people, on the other hand, make a living and then first set aside the amount needed to reach their goals.”

By choosing to pay themselves first—which you can do, too, by diverting a portion of your paycheck into a savings account or scheduling auto-transfers from checking to savings—wealthy people reliably hit their targets, while also learning to delay gratification and avoiding wealth busters like credit card debt.

They don’t miss opportunities to grow their wealth.

Sustainably wealthy people don’t stop after securing a well-paying job; they’re constantly looking for ways to improve themselves and their financial pictures—whether it’s by working toward raises and promotions, finding passive income sources or starting a business. And as they increase their income, they make sure not to increase their lifestyle expenses at the same rate.

The same types of people who push for more than the status quo are also more likely to be invested in the financial markets. “They understand the chance for loss, but by investing regularly, over time, they recognize the opportunity for long-term growth,” Martin says.

They don’t make emotional financial decisions.

Rather than buying or selling investments based on gut feelings and emotions, financially successful people make deliberate decisions with their long-term goals and strategies in mind.

“They believe in creating a comprehensive plan—and following that plan,” says Anne-Marie Laboe, executive vice president at Bernard R. Wolfe & Associates, Inc., a financial planning firm in Chevy Chase, Md. “They don’t invest in the latest fad or ‘hot tip.’”

Understandably, it’s not always easy to put your emotions aside when it comes to money, which is why it’s important to create systems that prevent irrational decisions—adhering to a 24-hour cooling-off period before making any big money move, say. Or establish a set of rules for when it’s safe to purchase a new investment, such as a particular stock price-to-earnings threshold.

They don’t put all their eggs in one basket.

“High-net-worth clients understand the need for diversification and how [diverse income sources] work together,” Laboe says.

That means that rather than, say, hinging their retirement security on the success of their employer’s own stock, or spending all their savings on real-estate projects, successful people aim for several different sources of wealth—then look at them holistically as part of one, big portfolio.

“If designed appropriately, there will always be pieces performing better than others at various times,” Laboe says, which minimizes your exposure to risk. “Be realistic in overall returns, knowing that you are looking at the long term.”

They don’t go it alone.

Financially successful people don’t gamble with their livelihood on the line. In other words, if they’re not sure how to approach a big money decision, they get help. In some cases, Laboe says, that assistance should come from a trusted adviser, whose job it is to create financial plans that address complicated issues like taxes, estate planning and income distributions during retirement.

But getting help doesn’t always mean paying for financial advice. If you find yourself in uncharted financial territory, you can consult friends who’ve faced a similar situation with success, research expert analysis online or leverage technology.

From apps like Acorns and other robo advisers that help you start investing, to platforms like Mint and You Need a Budget, there are plenty of tools out there to help you make great financial choices and set you on the path to long-term financial success.

July West Texas Intermediate crude CLN7, -0.67%  dropped $2.46, or 4.8%, to settle at $48.90 a barrel on the New York Mercantile Exchange. That was the lowest price a front-month contract since May 16 and largest percentage decline since May 4, according to data from Dow Jones.

July Brent crude LCON7, -0.51% the global benchmark, lost $2.50, or 4.6%, to $51.46 on the ICE Futures exchange in London.

WTI oil finished below both it's 50 and 200-day moving averages. Oil’s 50-day moving average is $49.59 a barrel, while its 200-day moving average is $49.55, according to FactSet data. Technical analysts use trading averages to help assess an asset’s short and long-term momentum

The market is sending a signal that they were looking from more out of the [OPEC] meeting, maybe a 12 month extension,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.

At the conference, Saudi Arabia oil minister Khalid al-Falih said the oil market “is on its way to recovery” but “more time is needed” to bring oil supplies back to their five-year average.

The extension of the supply pact “was signaled well in advance by the Saudi and Russian oil ministers,” Bhushan Bahree, senior director at IHS Markit, said in a report from Vienna.

The extension “reflects the alliance’s concern that a large inventory overhang continues to weigh on prices and is taking longer to whittle down than expected”—in part because of “fast-rising output, notably from shale developments in the United States,” said Bahree.

More than 20 OPEC and non-OPEC countries in November last year agreed to collective cut production by 1.8 million barrels a day in an effort to reduce the global supply glut that kept a lid on prices.

The accord came into effect on Jan. 1, but didn’t immediately affect global oil inventories. However, the impact of the lower production has become more evident recently, with U.S. crude supplies, for example, falling for a seventh week in a row, according to data out Wednesday.

The inventory drawdown in the U.S. “may have helped convince some OPEC members that supply cuts have had a delayed impact and should be given more time to accomplish the goal of draining crude stocks to levels around the five-year average,” said Geoffrey Craig, oil futures editor at S&P Global Platts, in a note.

Back on Nymex Thursday, July gasoline RBN7, -0.10%  lost 4.3 cents, or 2.6%, to $1.609 a gallon and July heating oil HOM7, -0.32%  fell 5.5 cents, or 3.5%, to $1.551 a gallon.

Natural gas for July NGN17, +0.24%  fell 2.5 cents, or 0.8%, at $3.184 per million British thermal units.

Data from the U.S. Energy Information Administration Thursday showed that domestic supplies of natural gas rose by 75 billion cubic feet for the week ended May 19. That was more than 67 billion-cubic-foot build expected by analysts surveyed by S&P Global Platts.

These numbers are realistic for two reasons. First, what seem like trivial sums of money in isolation add up to very substantial sums over long periods of time, as long as you’re disciplined enough to keep putting them aside, week-in, week-out. Second, you get the benefit of compound interest – the fact that you’re continually earning returns on the returns you’ve already earned as well as the savings you’re making; again, over the long term, the effect is dramatic.

Regular saving in practice

How, then, do you turn theory into practice? That is, what’s the best way to put, say, your £2 daily saving on coffee towards long-term savings?

Well, the first point to make is that this idea isn’t going to work unless you’re consistent, so you need some form of regular savings vehicle into which you can sweep your savings – on a monthly basis, say. Ideally, the sweep should be automatic, so that you don’t have to remember to do it.

At the same time, you’ll also need to think about where this money is invested. The safest option is a bank or building savings account, but the returns on such accounts look unattractive in the current low-interest rate environment. Moreover, over very long term periods, stock market investments have in the past outperformed cash savings. In the short term, these investments can fall in value as well as rise, but if you’re investing to produce a return over many years, or even decades, you can afford to take this risk.

Investment companies offer a solution

Investment companies are collective investment vehicles that pool savers’ money to invest in particular assets – some funds offer a broad exposure to the UK stock market or to global markets, while others are more specialist. Many funds offer regular savings schemes that allow you to contribute as little as £25 a month via a direct debit. You also have the option of holding your funds within a tax-free individual savings account.

Investing in the stock market this way has another advantage too: you get to benefit from a statistical quirk known as pound-cost averaging. Very simply, the idea is that in months when the value of the fund has fallen, your fixed cash sum investment buys more shares in it – so when the price recovers, you’ve got a larger holding. This can help smooth out some of the ups and downs of stock market investment.

Investment company regular savings plans aren’t for everyone – you must be prepared to take a long-term view and be comfortable with your money falling in value as well as rising. But if you’re looking for a disciplined way to channel even small amounts of cash into a long-term savings plan, they offer a convenient and attractive option.

The pull of dividend income has become a very powerful one and there is no sign of any decline in its popularity. In this short guide, we explore why companies that pay dividends are in such demand, why investment trusts are such a great way to tap into them, and what to look for when you’re investing for income.

Ever since the financial crisis of 2008, income-seekers have had a tough time as their low-risk sources of income have been eroded. With the base rate slashed to 0. 5% in 2009, bank savings accounts offered increasingly derisory rates; meanwhile, the Bank of England’s programme of buying government bonds pushed prices up and bond yields right down.

Many people, including cautious investors who would previously have felt uncomfortable with the added risks of equity investment, found themselves looking instead to the stock market and the dividends paid out by listed companies.

Dividend-paying businesses have therefore been highly sought-after over recent years – and all the more so in the prevailing environment of sluggish, uncertain growth in most developed economies. After all, once you’ve been paid a dividend, it’s yours to keep, a real return – unlike a rising share price, which could slip back again.

But equity income has other, inherent, attractions. Not only do these businesses provide a regular income stream, but they have historically been the better-established, well-run, profitable companies with cash to spare for shareholders.

Moreover, with inflation now on the rise (CPI inflation hit 1.2%, a 25-month high, in November) people are once again thinking about how to ensure their money will hold its real value over the years. Stock market investments are very attractive in that respect, as companies tend to raise their own prices to maintain their profits when costs are rising.

Even for investors who don’t currently need an income from their investments, dividend-paying companies can work brilliantly, as reinvested dividends boost total returns enormously over the long term. That’s because those dividends are used to buy more shares, which themselves pay dividends.

To put that into perspective, according to the London Business School, since 1990 UK equities with dividends reinvested have returned 5.4 per cent a year on average. When dividends are stripped out, the average annual total return falls to just 0.8 per cent a year.

And with companies that focus on growing their dividend payouts each year, the power of compounding is even more impressive. A company that raises its dividend by just 3% a year can double its payout in less than 25 years.

So it’s hardly surprising that dividend paying companies, and the funds and trusts that invest in them, have been so popular over recent years.