Glamour and idiocy

I’ve been reading Glamour magazine. On p60 there’s an article headed How to Turn £50 into £500.

“Yes, we’re serious — for the price of a manicure and two sushi lunches — you can build up some serious long term wealth.”

The writer (who wisely has her byline written only in very tiny letters down the side of the page) then tips a few stocks, or what she thinks might be stocks, for the magazine’s readers to buy with their £50. Topshop she says could be a “wise investment” given that Kate Moss has designed a clothing range for it and that it is soon to o pen stores in the US. The problem? Topshop isn’t listed in its own right — it’s part of Arcadia — so you can’t buy shares in it. You can’t buy into her other two suggestions directly either. Never mind the fact that, even if you could, dealing fees at about £10 would take up 20% of your £50 – something that with long term average equity returns running at around 7% would take some time to earn back.

She goes on to explain why, if stocks and shares don’t seem like the kind of thing that would suit you, you should use your money to buy ‘fractional ownership” of a “penthouse in Dubai” instead. She gives no information on how you might do this nor mentions the nightmare hundreds of British buyers are already caught up in in Dubai (appalling construction standards, flats still unfinished 2 years after the supposed completion date, to say nothing of the fact that the workers putting the things up live in total squalor and net under $3 a day each).

She also doesn’t mention the fact that property abroad is something that those prepared to take risks might consider getting into once their pension is fully funded; they have 6 months worth of cash in a high interest savings account; their primary mortgage is fully under control; they have no credit card debt or personal loans; and they have a basic and well diversified portfolio already set up.

Not something you buy when you can’t make up your mind whether to go for scarlet zeitgeist or black cherry nail varnish on a Saturday morning and end up with fifty quid to spare as a result.

I don’t want to pick on Glamour too much — it is, after all, a fashion magazine – but the piece is symptomatic of the idiocy of much of the advice out there at the moment. There’s no really easy way to make money — the best way to change £50 into £500 is to save it 10 times — and suggesting there is is at best irritating and at worst irresponsible. I’m beginning to think that much the same can be said of the nonsense currently being written about ‘green finance.’ Take green mortgages — something Gordon Brown called for in his budget and which scores of providers claim they will soon be offering.

But why? Green mortgages – as offered at the moment by Norwich and Peterborough and by the Co-op — don’t seem to have that much going for them. Their USP is that their providers offset a proportion of the carbon emissions emitted by the home in question. N&P does this by planting 8 trees a year (for 5 years — you and your house are on your own after that) and the Co-op does it by making a donation to offsetting company Climate Care. You might think that sounds like a nice thing for them to do. But it isn’t really. Why? Because you’d be better off just getting an ordinary mortgage and doing the offsetting yourself (unless you particularly want to add to N&P’s profits).

Melanie Bien at Savills Private Finance has done the numbers. If you take the Co-op three year green at 5.89% and have a £150,000 mortgage you’ll end up paying £736.25 a month. Take the offering from N&P at 5.79% and you’ll pay £723.75. However, if instead you go for an ordinary mortgage such as the Britannia 3 year fix at 5.34% you’ll only pay £667.50 a month. That means that if you go green you’ll pay £6-700 a year for the privilege. But it doesn’t cost that much to plant 8 trees and you could offset all the carbon your household emits (on average) over a full year for a mere £40-50 if you did it yourself. So by getting a ‘green’ mortgage all you are actually doing is filling up your lender’s coffers to the tune of over £600 a year. Why would you want to do that?

P.S. For more on carbon offsetting and whether it really makes sense, see last Friday’s edition of MoneyWeek at www.moneyweek.com