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Rethinking Investment

In my last post, made a few months ago now, I argued in favour of passive index-based funds when choosing a KiwiSaver provider (i.e. a fund that tries to track a particular sub-market rather than one where people actively trade to maximise returns). This was on the grounds that they not only generate a better return when fees are taken into account, but that they often do better than the actively managed accounts on gross return as well. I’m still happy with that analysis.

However, I also argued that when investing for the long term the best returns have tended to come from investments in growth funds such as stock market index trackers rather than the more predictable cash and bonds; the idea being that while individual stocks may be risky the overall market has grown steadily.

Obviously this theory relies on the idea of the ever-growing economy caused by increasing production and consumption. I like to believe that this is possible, that the world will keep getting richer. The belief comforts me while I read books that describe the end of life as we know it through the effects of climate change, peak oil, or whatever other catastrophe looks good on the dustjacket.

I don’t know which outcome will come to pass in my lifetime or even which of them is the most likely. But I think there’s enough chance that I’ll live in a civilisation that will muddle through and growth-based funds will do well enough that they’re still the best choice. You could say that they track the success or otherwise of our civilisation.

However, at the moment I’ve chosen a cash-generating cash and bond index fund because I do think we’re in for a recession in the next few years. In this case I would expect stock market returns to fall in value or at least lag behind the high interest rates that are currently available. Why buy into it now when you could wait a few years?

I’ll tell you whether I’m right or not after it happens.

Some time ago I subscribed to eMusic.com for a number of reasons. Firstly, no matter how much I like my old favourites I crave the novelty of listening to music I haven’t heard before.

Secondly, I have completely and utterly lost the habit of buying CDs and I’d hardly know what to do with one once I got it. Thirdly, I can’t really be bothered with the hassle of finding and downloading music illegally. (RIP Oink, I miss you and your universal catalogue of well-ripped and properly tagged music.)

Fourthly, and in some ways most importantly to me when it came to actually signing up and paying money, eMusic did it right. The music you download from them is unencumbered moderately high-quality MP3s. No silly Apple or Microsoft enabled controls on what you could do with it or where you could listen to it.

I enjoyed using the service and got some good music to listen to (we’ll ignore the album of death-metal I downloaded by accident). But last year it didn’t seem worth it to me any more as I had no income and no decent internet connection, so I let my subscription lapse.

But eMusic is cunning and every so often they’d send me a little reminder email, “Come back! We has musics! Join us!” And then they got even more enticing and offered me 75 bonus downloads if I signed up again – so I did.

But there’s a new twist on the old service. eMusic’s catalogue was always a bit patchy and it was often a case of finding something good to download rather than going there with a particular artist or album in mind. But now it’s got even harder as:

We’re sorry. This album is unavailable for download in your country (New Zealand) at this time. We apologize for any inconvenience this may cause.

Even worse, eMusic is sending me titillating emails that are promoting the very albums that I’m not allowed to download!

Yes, the music industry is back to its old tricks of trying to impose their will on their customers, saying that they’d rather not take our money so that their “product/marketing geniuses” can continue to play their consumer segmentation games.

I thought they’d learnt, that the invisible hand of the marketplace had given them a good slapping around and that they had resolved to not be so stupid any more. Apparently I was wrong and we’re going to have to go through another round of watching the music industry indulge in self-destructive behaviour. Maybe one day they’ll finally get it and they’ll actually make it easy for me to give them money in exchange for music.