Sunday, 8 March 2015

The Mystique of the Market and the Common Man

I started this blog about a year ago now so I thought I'd take another look at the "theme" I chose when I did so - the idea that investing is a dark art accessible only to the select few. The slant I took was, of course, a little tongue-in-cheek, but there is a serious side to this issue. The proportion of the population who invest in the markets (other than in a "second hand way" via their pension funds - and in this case many people don't even realise this is what is happening) is very small.

The Stocks and Shares ISA, which is the most accessible and widely publicised route into investing, is still a very poor relation to the Cash ISA and this trend has changed very little despite the very poor returns of cash ISAs in recent years. Statistics show that Cash ISAs consistently form over 70% of the total takeup.1
This disparity is also reflected in the PF blogscape and on sites such as MSE. There are still relatively few UK investment bloggers, and the majority of these are people who work, or have worked, in banking or financial institutions, so cannot consider themselves ordinary mortals :-). (The situation in the US seems to be a little different where Dividend Investing is more popular).

Despite the relative lack of involvement in investing in the UK there's certainly no lack of interest in money itself, evidenced by the vast amount of Budgeting, Saving and DebtFree blogging and forum participation going on.

Why should this be?

Looking back at my own journey I can understand the reticence people feel. For most of us money is hard earned and we are very loath to "play" with it. I believe that this is a pivotal point. Money, for the majority of people, is something that is tied tightly to work. We earn it. It is not something that can be grown. It really does not "grow on trees". However, the select few who grow up in a culture of inheritance see things from a very different point of view. For them what essentially makes money is money itself, compound interest is their biggest friend and volatility holds no real fear. There's a whole different mindset involved and it's one which it is difficult to introduce to people who actually need what they've got and would really struggle if it was lost.

Putting a little away in a savings account and watching it grow slowly is one thing, but tossing it into the seething cauldron of the stock market feels very much like losing control. In the eyes of the general public investing still has that impenetrable fence of, danger, magic, and privilege surrounding it. You need financial qualifications and "insider" knowledge to be able to invest, or you need to be able to pay someone who does. It's much safer to stay on the other side of that fence.

This apprehension is gradually being addressed by the increasing availability of advice and information on the Internet forums such as MSE, blogs such as Monevator, and the DIY platforms themselves. Helpful "Investing Made Easy" books are readily available and understandable. I have used of a lot of this material myself over the last year and I'm really grateful for the time taken by the authors and participants to help and inform. But all this help should be making more inroads than it is.

I suppose we could ask why does it matter? If the majority of people are not comfortable with investing then why should they be encouraged to do so. This might be a sensible response in a world where not so much lay at the door of the individual. In the days of the Defined Benefit pension and co-operative financial institutions such as Building Societies personal finance didn't need to be quite so personal. However many sensible people these days are not even including receiving a state pension in their financial planning. It seems that, (sadly in my opinion - and dangerously too) the state is "letting go" of its responsibility to be mindful of the financial well-being of all its citizens.

Earned wealth is dropping and "grown" wealth is growing. This makes it even more important that ordinary people (what used to equate to the working and lower middle class) start to see the benefit of investing their money. Maybe the newer types of "investment" that don't carry the old fear factor - things like peer-to-peer lending and crowd funding might be a less daunting way into the whole process for some people. Despite the fact that they are often inherently just as risky, they do seem more transparent than the whole cult of "Wealth Management", with its performance charts, asset allocation, diversification, ETFs, Bonds and a multitude of other incomprehensible terms, rules, calculations and acronyms.

All in all, I have had a very interesting year teaching myself the ways of the dark art. I have learnt a lot and although I know that I still have a lot to learn, I have found the whole process incredibly satisfying and engaging. What worries me is that most people don't have the time, inclination or interest to do the legwork, nor the money to pay someone else to do it for them. This fact will do nothing to halt the growing trend towards wealth inequality.

Investing still isn't simple enough, probably because it isn't in the interest of the industry to make it so. This is something we should all be concerned about.

1 HM Revenue and Customs ISA Statistics


  1. I agree with your comments on investments being a "dark art". It is very true, the UK culture does not teach finance properly in school, college or the wider community. So it is only the enlightened few that understand and wisely invest that make any gain or security.

    The media mystify the investment process and call on getting advise - which has been outed a number of times as being poor and costly. Financial advisors who charge execessive commissions or fees and then your resulting income is then sliced into providing the fat cats with their wealth. I wonder how many people will be duped by the new pension reforms and lose their money?

    No wonder people are ill-informed and I think that the government and big business somewhat like it that way. The masses are kept suppressed and compliant in work - drudging away at poorly paid jobs with no career and the big businesses and the government continue to take the profits and taxes respectively.

    I was luckly to grow up in a family where saving was drummed into you, we never borrowed money. Althought we didnt have much money, any money we did have was hard earned and saved towards respective purchases which then meant that those purchases meant more to you. I had no knowledge of investing and have learnt a few things over the years. Mainly through share saves and share options with the company I use to work for, I worked with finance people who helped me along the way. That exposed me to the risks and rewards of investing wisely and for the long-term. I have lost money along the way but I have always had the view that I should have no debts and work within the monetary boundaries imposed by my income.
    Everyday read and learn something new and work to live rather than live to work.

    1. Hi sparklebeeblog, you are quite right to say that the financial media plays a big part in helping to mystify investing, even if not always directly, then certainly by the excessive amount of "information" that is produced each day. I think of a big part of it as being on par with the celebrity gossip rags. Most of it should be ignored.

      You describe how you were taught to have very healthy relationship with money. Parents do have a responsibility in this process but (as you say) so do schools and society in general. Let's hope things are starting to move in the right direction and that the new pension rules will prove to be an opportunity for things to change with proper regulation, advice services and government oversight. We can but hope :-)

  2. Hi Cerridwen, I really like how you've drawn everything together to remind us why it's important that we share our knowledge :)

    I think it is interesting how people went from a time of huge personal responsibility where everyone fended for themselves, and then we had the welfare state where everyone was taken care of, and now we're shifting into a time where population growth has meant that we're back to the stage of every person for themselves. The thing is the world has moved on during that time and the typical learning experiences like schools just don't share practical knowledge like this. I was actually thinking of starting up a side career doing financial coaching for those interesting in learning more, but it's such a tricky area with all the regulation. I don't particularly fancy training to be an IFA so I think it requires some more thought!

    1. Hi FF. Thanks.

      There's definitely a growing need for independent, non-threatening financial advice services - preferably ones that don't label themselves "Wealth Management" - a term designed to make most people think "that's not for me".

      As I come to the end of my working life I'm thinking about volunteering in this area but, as you say, it's something that it is very important to get right because the wrong advice can have such an impact on people's lives.

      Good luck with investigating the coaching though, I'm sure there's a need for it and maybe especially by, and for, women who often hold the purse strings in families. A figure I came across is that only about 10% of financial advisers in the UK are women so it's definitely an area in which we could do with addressing the imbalance.

  3. "In the eyes of the general public investing still has that impenetrable fence of, danger, magic, and privilege surrounding it. You need financial qualifications and "insider" knowledge to be able to invest, or you need to be able to pay someone who does." I can't help but feel that the second sentence is at least partially if not fully responsible for the first sentence here in the UK. When I first started taking control of my finances in 2007 my first response was to seek help from some 'experts'. They used some pretty impressive big words and made what they were about to do sound very complicated. I nearly went with one of them but luckily at the same time I also went to a book store and bought a few investing books for a second opinion. In hindsight I can't help but feel that as middle men, who were effectively going to be skimming from my investment return, they needed to make sure I was baffled and it was made to sound complicated to ensure I needed them.

    At a grass roots level investing IMHO really doesn't have to be difficult. I know as a DIY'er that I definitely make it more complicated than it has to be as I try and squeeze some extra performance. I could probably achieve 99% of the result by simply reading Tim Hale's Smarter Investing then buying an appropriate Vanguard LifeStrategy fund in low cost NISA and SIPP wrappers.


    1. That's all very true RIT and you are an example to us all of the power of DIY :-)

      Since I started learning about investing I have been struck by how similar the financial arena is to my field of work (IT) in all the obfuscation and general "this is so hard" nonsense that goes on. I have no formal IT qualifications but taught myself, and pestered colleagues and now know enough to do my job just as competently as those who have had formal learning.

      Unfortunately, although a lot of specialist knowledge in finance (and IT) is based on years of experience and knowledge that can only come with intense study and involvement with the subject, there is also a tendency for people to make things appear more complicated than they actually are to further their own advantage. A lot of the time when you get down to the basics it really isn't rocket science. :-)

  4. Cerridwen, I've finally gotten around to commenting at 23:20 - I did promise, so here it is.

    Thank you so much for this thoughtful post. I agree with you and the comments above, that the situation is not great. I think you are basically saying that it all boils down to education - something I am passionate about. This does not mean to say that if we are all well educated in finances, then there is no place for IFAs and the like - on the contrary, we need to be able to understand our money in everyday life and learn the skills of budgeting, saving, and simple investing and so on. However, The markets are much broader area and sometimes it is best to leave things up to the professionals.

    The problem comes, as you say, in that things are really not as clear as they can and should be. I would hope to see more from central government to address this. They have been making great progress in many other areas, as can be seen on the main .gov website which is appoximately 1,000,000,000,000,000x better that the previous government's site, which was crappy and difficult to navigate.

    I do believe there needs to be some kind of compromise in life, as Frugal Freelancer mentioned, the way the world is going is that we are becoming more independent and less reliant on the welfare state. I think this is a good thing, but only if people are armed with, or have easy and clear access to information. This ease is the benefit of the internet, but the clarity of access is yet to catch up.

    Looking forward to more posts like this,


    1. Hi TV,

      You hit the nail on the head when you mention education, and also when you say that it can never replace the need for specialist advice. The two things are complementary, but as regards investing I think we are still one stage back in that many people don't even think that it is something they can concern themselves with at all. There's a major consciousness raising issue here.

      I was also interested to read what you said about the welfare state and dependency. I have worked in public services all my life and spent a good chunk of it in The Department of Employment assessing and paying what used to be called Unemployment Benefit. Experience tells me that people really do have a strong instinct to stand on their own two feet given the opportunity. That is what the state has to create and maintain - equality of opportunity. Unfortunately at the moment I don't think its doing its job properly. There's a really powerful article on this here. Take a look if you get the chance.

  5. Hi Cerridwen

    It was how you mixed the dark arts of alchemy with investing that drew me to your blog originally! :-)

    Like Sparklebee, my parents were savers not spenders so I was brought up to put money aside for a rainy day. Sadly, their good advice went out of the window during most of my 20s and 30s when I spiralled into debt but I think it's that upbringing that I had that has made it easier for me now to save and be focused.

    I think besides lack of education, one of the things that stop many people from investing is what is portrayed in the media (in collusion with some elements of the finance industry?) Big wins or huge losses from shares always make the headlines - a slow, passively growing portfolio doesn't make for exciting news (unless it's your own portfolio!)

    For most people, financial news is either of the sensational variety, eg stock exchange tumbling, or of the yawnsome high brow variety for 'people in the know', ie Financial Times. I would say that this is the view of most of my friends and colleagues, most of whom are in the finance industry!

    1. That's a very interesting point weenie - and we come back to the media yet again.

      One of the things that struck me most about the investing "scene" when I first got interested was the sheer number of words written on it in a totally "gossipy" kind of way. Speculation, conjecture and sensationalism. And I thought this was meant to be a science based on rationality and solid numbers :-)

  6. Thanks for the link to the article. I have mixed feeling about it, as I also worked in the voluntary sector and ran a project for one of the most deprived areas in the country. It didn't matter how much money was thrown at the area, or at people, things did not change in the entire time I lived in that city, and in fact, the metrics show that it got worse.

    What my project did was to help open and change the minds of teenagers - to help them by way of an educational and mentoring programme which taught them about emotional intelligence, communication skills, that kind of thing, whilst also doing some fun activities.

    I am a firm believer in the small state, however I do believe that the state should be supporting as much non-profit and charitable things as possible, as they tend to be run by people with a stake in the community, rather than just another local government office or initiative, which according to my own experience - never helped to improve the area I worked in.

    The other thing is that I think charities and non-profits should be courting the major entreprenuers and big businesses to get involved with projects, but I think they are reticent to do so because they feel like maybe it's 'dirty money'... despite the fact that they will happily take government grants... even though the government got the money in the first place from tax receipts from the very same companies...

    food for thought, again, thank you for raising this discussion.

    1. I certainly agree about the importance of local initiatives which engage people far more effectively because they made a difference to them right there, where it can be seen, in their neighbourhoods. But community projects have to have a solid bedrock to build on in order to be be really successful and make a lasting difference - a thriving economy, jobs with living wages, health services, affordable public transport, energy, housing, education.

      Unfortunately business can not always be relied upon to regulate itself which is maybe why charities do get a bit wary of depending on funding from this direction and would rather have government grants where the system is more transparent and independently audited - I agree - a sad reflection of the times.

      Thanks for your comments :-)