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.

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1 HM Revenue and Customs ISA Statistics^↩

Buying "Clean" (Part 1).

I made another small buy into risk this week - £250 into iShares S&P Gbl Clean Energy. I did deliberate fairly long and fairly hard before doing so as it did feel like a bit of an indulgence. I don't know much about the industry and it is almost as risky as Shin Nippon with a TrustNet score of 176. But I really like the ethos behind the fund.

The S&P Global Clean Energy Index offers exposure to the 30 largest and most liquid listed companies globally that are involved in clean energy related businesses, from both developed markets and emerging markets

The news for clean energy has been an interesting mix recently (both on the ground and in the investment arena ) which means it is difficult to predict how things will go, but the amount I have put in is very small, I have nothing else in the energy/commodity range, it is an ETF so the fees are minimal and I do feel in tune with the product. I shall probably not add to this more than 3 or 4 times a year, possibly in rotation with the Shin Nippon.

So, I think my appetite for a little risk taking should now be satisfied.

I was finally spurred on to let myself have these two small indulgences by a comment I read on the moneysavingexpert forum. It was made in response to someone who, like me, has a decent public sector pension waiting for them at normal retirement age but who was wondering how to manage their investments in order to supplement this. Someone made the suggestion that perhaps they could think of their pension as a whole load of inflation linked gilts and plan the rest of their allocation accordingly. I had a bit of a light bulb moment when I read this because it makes perfect sense and gives me a reason to put my ISA funds into equities without having to worry too much about balancing this with fixed income.

I appreciate that the time-frame is important with all this and that when I am going to need the money I will have to start moving the risky bits into something that is less likely to bomb but, as far as the biggest part of the ISA is concerned, this shouldn't be for around 8 -10 years.

The SIPP that I have just started is a different matter and I intend to take a lot more care with ensuring that this will not be prone to massive jumps and dips as I will definitely need that in 8 years. My FSAVC, which I will need in 5, is invested in a very safe fund with a Trustnet risk rating of 8, so I'm not going to worry about that one especially as I phoned them this week (I am well overdue an annual statement) and it has risen by around £1,300 over and above what I put in this year and so seems to be on track to give me the £22,000 I will need in 5 years time.

So, all-in-all, I'm not feeling too reckless and irresponsible by raising my risk profile and investing in the future of the planet (and that's a whole other post).

Big In Japan

This is what we're up against:

Ruffer Tips 50% Upside in Japan within three years
Experts warn Japanese revival is doomed

These articles appeared on Trustnet within a few days of each other recently and, to my mind, this demonstrates the main reason why the majority of people in the UK still feel that investing is not for them and instead scratch about looking for an extra 0.01% in savings accounts.

Not only are most of us not experts in financial matters it seems that even if we were to become so and join the people who are "in the know",  it wouldn't protect our cash because even "experts" cannot agree as to what best to do with it. When your savings are important to you and you can't afford to lose them, having confidence about what you do with them is essential. The bottom line is that the investment universe, and all who live in it, do not inspire confidence. There is so much "talk" that we can't keep up with it all, there is too much "buy this or lose out", quickly followed by "buy this and lose out". In a way the only rational thing to do is keep well away.

I don't mean to say that we don't have faith in the big picture, I think that the majority of people believe that the markets can be relied upon to self-regulate, bounce up and then drop down again but ultimately recover. It is more that there is a bewildering gap between what looks to most of us as if it should be a science (graphs, statistics, pye charts ad nauseum) and the apparent behaviour of those who deal in it and seem to be ruled by rumour, incantation and superstition (how can we call it anything else when there is rarely any consensus and the "experts" cannot produce any reliable results based on any proven methodology).  There is no firm ground. "Information" and advice cannot be trusted.

In these days when being able to rely on our own abilities to look after our money is becoming even more important it is a scandal that the financial press seems so often to delight in what is, in effect, a tabloid-esque treatment of its subject.

Personally I am currently reading a lot of this stuff because I am trying to learn (and as a whole it is useful in order to get a grip on the basics) but more than 90% of the little I do know has not come from all the journalistic "noise" but from reliable sources such as Monevator and individuals on the moneysavingexpert forums. Maybe it's just the nature of the beast but it does make me more than a little cross that the world of personal investing acts as if it deserves to call itself a science when it seems to be sadly lacking in solid technique.

(btw I put £300 in Baillie Gifford Shin Nippon this week but only because I hadn't got any Japan - otherwise the net result of reading both articles would probably have been inertia ).

Getting Onto the Platform

I first took out a S&S ISA around 8 years ago with CIS (now managed by Royal London). I paid into it monthly and took very little notice of how it was doing, basically because I truly believed that it was little more than a glorified savings account which would just increase somewhere in line with the amount I put in. I had heard the term "volatility" but I had never really bothered to find out what it meant.

When I started thinking about retirement planning I took another look at my ISA as this is the biggest "chunk" of money that I have available to help me. Whilst doing my research on what a S&S ISA actually is (which naturally led onto a crash course in portfolio building and asset allocation courtesy of Tim Hale amongst others), I came to realise that there was a whole new world out there. This world was one where people could manage their own investments online, where they could see how those investments were doing on a day-to-day basis if they wanted to, where they could research what was available, create imaginary portfolios and "watch" interesting funds. In other words I discovered the online broker platform.

From believing that I had to leave my money where it was and passively watch what happened to it via an annual statement that came through the post, I went to realising that I could move it onto a platform and be actively involved in managing it. It was a liberating discovery as it fed my desire for control and need to plan, but it was also a little scary. How should I go about moving all that money, and where should I put it?

As I'd been reading Monevator for some time this article was my main information point in my planning, (although I did read the boards at moneysavingexpert.com and anything else I came across about the subject). Given my profile Interactive Investor turned out to be the fairly obvious choice and as they were offering an attractive transfer deal at the time (and still are, I believe) I decided to bite the bullet and start the ball rolling.

I filled in the transfer form, set up an ISA account and began to familiarise myself with how things worked. I must admit that the first time I bought a fund I felt quite nervous and, in fact, my 5 first buys were fairly small ones as I wanted to see the whole process run through but without committing much cash. For that reason I know I paid more dealing costs than I should have (iii charge £10 per deal) because I hadn't yet (and still haven't) been credited with any of the free dealing that was promised as part of the transfer deal. Thus I committed one of the cardinal sins of investing - paying over the odds to deal. But I'm happy to take this hit as I think it's worth it to get myself up and running with confidence. Plus I now know that I've been paying more charges than I have needed to for years, so, in the long run I will be saving quite a bit of money.

I'm now at the point where I feel that things are going pretty well. I have 5 funds with small amounts sitting in them, I've organised a monthly payment into my account from my current account and the first set of regular transactions I set up went through (almost) without a hitch. I feel pretty pleased with myself and all ready for the next financial year.

If only whoever is sorting out my transfer would get a move on and shift things across ..