This is the time of year for virtuous resolutions, so let us resolve on a visit to the Bad Investment Guide, which now has a gilt-edged new entry. In among all the flaky oil-drillers and flats brought off the drawing board for a quick turn, we can note the stately presence of Her Majesty’s Government’s 41/4 per cent Treasury stock, due for redemption in 2055. Proudly launched by the Chancellor, Gordon Brown, last summer, this stock now stands at a small premium, which means that if you were to buy it and sit on it for the next 49 years, you would be guaranteed to lose money. Along the way, though, you would receive a steady income. Putting the two together, your investment would yield you 3.9 per cent — before tax, that is, and before the corrosive effects of inflation. If you pay income tax at the higher rate and if inflation hits the Bank of England’s target, you are looking at a real return on your money that is not much more than positive: less, in fact, than 0.5 per cent. To be content with that for almost half a century you must have schooled yourself to expect little and to trust in governments. Sir Clarence Sadd, who ran the Midland Bank, put his trust in an earlier Chancellor, Hugh Dalton, who proudly launched a new stock paying 21/2 per cent. Today, rather more than half a century later, the Midland’s ‘Daltons’ are changing hands for less than three-fifths of their nominal value, and their real value has been shredded by inflation. Perhaps Browns will do better.
Sadd, sadder, sorry
You will be disheartened to learn that today’s Clarence Sadds are buying Browns for your old age. The pension funds’ liabilities stretch out for half a century and stocks like this are tailor-made to match them, so the trustees and managers can switch their minds off, nod smugly to their regulators and assert that safety must come first.