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Weekend reading: A little money in shares is better than none at all

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What caught my eye this week.

New research from Scottish Friendly makes dispiriting reading for anyone who has spent a decade trying to teach people about investing.

(*Looks around room* “Who me? No no, I was in it for the Brexit banter.” *Shuffles away*)

It seems that having surveyed 2,000 UK savers, the life assurance giant has discovered half of us are afflicted by what it calls ‘investophobia’.

Scottish Friendly says:

  • Inflation is currently running at 2.4% yet the best easy-access cash savings rate available is 1.33%.
  • Almost two-thirds (66%) of savers are aware that interest rates on savings accounts are less than the current rate of inflation.
  • Despite that, more than half (53%) of UK savers say they wouldn’t consider investing in stocks and shares.
  • Almost half (49%) say fear of potential losses is the main reason holding them back.

A decade ago, many web explorers who wandered into Monevator Mansions had sworn off shares forever. We seldom see such people anymore.

Ten years into a bull market, we – and often many of you, in the comments – are mostly reminding visitors that bonds, cash, and property still have a place in their portfolios, let alone that it’s not a great idea to go all-in on, say, tech stocks or emerging markets.

Yet out there in the wider world, the majority still wouldn’t touch a share with a barge pole.

Small mercies

Messing about with the tools at Portfolio Charts suggests that a UK saver who kept all their money in cash would have seen an average annual real return of about 1.6% since 1970. Standard deviation was 4%.

Remember ‘real’ means these are inflation-adjusted returns. Cash can lose you money when inflation is higher than the interest rate you’re paid. The tool suggests that happened in 31% of the years.

So what happens if we take a stiff drink and put a modest 20% allocation into global shares, while still keeping the rest in cash?

Mostly good things. The average real return rises to 2.6%. Standard deviation is only modestly higher at 5.1%. And the number of money losing periods actually fall from 31% to 27%, despite the inclusion of risky shares.

That difference between a 1.6% average real return versus 2.6% isn’t much on paper, but it’s significant over time.

A compound interest calculation reveals:

  • Over 30 years, a 1.6% return turns £100,000 into £160,000 on a real money basis.1
  • A 2.6% return takes your wealth to £216,000 over the same period. That’s a significantly better result, with only a little more volatility and fewer outright losing years.

Of course you and I know that on a 30-year basis, having 80% of your money in cash is very sub-optimal.

  • For the record, a simple 60/40-style portfolio split between global equities and intermediate UK government bonds chalked up an average annual real return of 5.3%, albeit with much higher volatility. That’s good enough to turn £100,000 into £471,000 in real terms.

Adding other asset classes can tweak the return profile further.

Here’s one I did earlier

So yes, agreed, having just 20% of your money in shares is far from perfect.

But remember, we’re not look for a home run here – we’re just looking at getting people off a terrible first base with their 0% allocation to the stock market.

And here simple – if sub-optimal – strategies can make a big difference.

I’ve mentioned before that I’ve often started friends investing with a 50/50 allocation split between shares and cash. (Now I’d probably favour a Vanguard Lifestrategy 60/40, unless they really insisted on seeing and cuddling the cash).

Nobody around here is going to suggest having 50% of your investment in cash is ideal. But I’ve seen it change lives.

For instance, a friend of mine – who was running a persistent overdraft when I first met her – agreed to try something similar to this and to start investing back in 2002 or 2003.

To supplement her work pensions held elsewhere, she began direct debiting money from her paycheck every month, splitting it between savings and an ISA stuffed with index funds.

At some point around the financial crisis she meddled without telling me, diverting some equity money into more expensive self-styled ethical funds. But besides that moment of madness/enthusiasm, she basically ignored the portfolio. She only rarely increased the contributions. Most annual statements went unread into a bottom drawer.

She still enjoyed a good result. In fact a couple of years ago she called to thank me for getting her started.

This painless strategy had compounded over 15 years into a significant six-figure sum – a deposit for her first flat, in fact!

I’ve visited her new family’s home in London, and it’s lovely.

The only way is up

Perfect can be the enemy of the good, as my old dad used to tell me. I wouldn’t attempt to turn anyone into The Accumulator overnight.

Know somebody terrified of shares? Try to get them to set up a direct debit to put say £100 – or whatever is a small but meaningful sum for them – into a global tracker every month.

Chances are after a few years they’ll catch the bug and lose their fear. Then they’re off!


Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!2

First-time buyer numbers rise as buy-to-let market falls – Guardian

Stoke is the debt capital of England and Wales, followed by Plymouth – Guardian

A global trade war could reverse the deflation of the past few decades – Bloomberg

Anti-money laundering push is steering oligarchs away from London property – ThisIsMoney

How Build-A-Bear fell into its own trap – BBC

Forecasts from widely-respected GMO look gloomy, but be aware it was similarly (excessively) pessimistic seven years ago – Pension Partners

Products and services

Banks will soon require text message confirmation for online Visa card purchase – ThisIsMoney

Hargreaves Lansdown’s power to profit from customers exposed in new report [Search result]FT

The pros and cons of Pension Increase Exchange – ThisIsMoney

Mortgage deal boost for young professionals [Search result]FT

Ratesetter’s £100 bonus effectively boosts your expected annual return on £1,000 to 13%  – Ratesetter [Affiliate link]

How smart phones are destroying hedge fund secrecy – Institutional Investor

Top places to buy a home in the sun on a budget revealed – ThisIsMoney

Comment and opinion

Simon Lambert: House prices need to fall 30% not freeze for five years – ThisIsMoney

Are you sure your investments are appropriate for you? – A Wealth of Common Sense

The big questions to ask before you retire [Search result]FT

Exploring the relationship between stocks and bonds – Vanguard blog

The rise and fall and rise of Ben Graham – Novel Investor

The nine essential conditions to commit massive fraud – The Reformed Broker

Nick Train: Value was a 20th Century phenomenon – Portfolio Advisor

A hard lesson learned about investing in cyclicals – UK Value Investor

Who are the greatest investors of all-time? – Pragmatic Capitalism

A tribute to stock picker Chuck Allman – MicroCap Club

Kindle book bargains

Alan Sugar: What you see is what you get by Alan Sugar – £0.99 on Kindle

Einstein: His Life and Universe by Walter Isaacson – £0.99 on Kindle

The Honourable Company: History of the English East India Company by John Keay – £1.99 on Kindle

Moon Over Soho: The Second Rivers of London novel by Ben Aaronovitch – £0.99 on Kindle


Soft or hard, no brand of Brexit can command a Commons majority – Guardian

How the BBC lost the plot on Brexit – New York Review of Books

The politics of Brexit have caught up with reality [Search result]FT

Boris Johnson has ruined Britain – New York Times

Off our beat

Kylie Jenner: The reality teen and almost-billionaire has founded a cosmetics empire – BBC

Fahrenheit 100: Could this be the summer Britain wakes up to climate change? – Guardian

The ‘vegetarian’ mutton curry that unites Bengalis – BBC

The killing of a blue whale reveals how disconnected we are from nature – Guardian

The best banners from London’s anti-Trump march – Londonist

And finally…

“The word ‘risk’ derives from the early Italian risicare, which means ‘to dare’. In this sense, risk is a choice rather than a fate. The actions we dare to take, which depend on how free we are to make choices, are what the story of risk is all about. And that story helps define what it means to be a human being.”
– Peter L. Bernstein, Against the Gods: The Remarkable Story of Risk

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{ 57 comments… add one }
  • 51 Matthew July 16, 2018, 6:06 pm

    You could think of a crash as just a period of illiquidity – like if you were unable to sell your small business or house (at a reasonable price) during a recession for a period of time – you haven’t lost the asset, just the ability to sell it for a while (unless something actually happened to the underlying asset)

  • 52 The Investor July 16, 2018, 11:20 pm

    Good conversation. Just beware that feelings run weird in big crashes. See:


  • 53 dearieme July 17, 2018, 12:18 pm

    It was the Aleph blog, I think, that said most people should invest at moderate risk. Too low a risk => too little growth. Too high a risk => nerve cracks in slump, shares sold => too little growth (or worse).

    I have no idea how one can tell in advance that one would hold one’s nerve in a big market slump. I suspect that windy assertions are worth nothing. I am beginning to look at people who write about rule-based sell and buy decisions as a way of (fingers crossed) avoiding slumps, or “drawdowns” as Americans oddly call them.

    If one is happy with rule-based rebalancing I don’t see an objection of principle to other rule-based wheezes. Both are just a special case of market timing.

  • 54 Paul Purshouse July 17, 2018, 1:03 pm

    Hi TI / TA,

    Did I hear this right, you guys are currently in the process of writing a book? 🙂


  • 55 L Austin July 19, 2018, 9:49 am

    Instead of having the risk of losing money they opt for the certainty of losing money by putting it in account where it doesn’t even keep up with inflation. Silly beggers!

  • 56 Learner July 20, 2018, 5:44 am

    Been having some fun this evening in the time machine via the NY Times Archive search, browsing articles from 2007-2009. https://www.nytimes.com/search/

    It’s remarkable how words like “subprime”, “credit”, “Recession” slowly gather pace and frequency in headlines over a span of several months. It doesn’t seem like a sudden event.

  • 57 Hariseldon July 20, 2018, 9:32 am

    @learner thank you for the NY Times date related search, I am looking with renewed interest at 2006-2007. My recollection of the period in question that it was not that obvious.

    Having had three periods of -40% to -50% , 1999 /2000 was a period when when problems in one area were obvious, I knew that my portfolio was not in these areas, it did not provide much protection , pretty much everything goes down.

    Staying invested through these periods I came through better off , but it’s not comfortable.
    I am rather alarmed that some people dismiss the possibility of a heavy market fall as not that bad, they would carry on through it and buy the dips. I suspect that without prior experience many would fall by the wayside and sell out at the low’s and suffer significant permanent losses.

    It seems more prevalent that people ignore the downsides and to me that’s a warning signal. The premise of the original article that some equity exposure is beneficial is undoubtedly true but holding some ‘safe’ assets with low returns is not dumb, it’s paying an insurance premium and provides some ammunition in the event of heavy market falls.

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