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Are you lost in Neverland? Fear of investing is a familiar and costly story

Investing fairy tales

Like being too scared to date or too shy to visit a gym, the fear of investing is a hangup that costs you nothing in the short-term but can cripple your long-term future.

I’ve seen it many times over the decades. More so as my family and friends have come to think of me as the person they know who is into investing. They approach me with their hopes and fears.

Many people grow up with no role models who invest. It can all seem foreign and frightening.

My own working-class parents relied on a defined benefit pension – and their home – for their old age. They didn’t think about shares once.

My dad said I was gambling. Only after he died did my mum start a modest portfolio.

Other people get burned early by a self-inflicted loss. This used to happen because they unfortunately discovered the market via a friend or workmate who day trades. Today first contact probably happens more on social media.

Half a dozen lost shirts later, some look for a better way. For them, punting on blue sky stocks turns out to be an on-ramp to a global tracker and a simpler life.

But others eventually conclude, again, it’s all gambling. They might swear off investing for a decade. Our lives are too short for that much forsaken compounding not to hurt.

I saw this nervous sentiment after the Dotcom bubble burst. Even those who did keep investing snatched at cheap shares and wanted to sell before they were caught out. Faith in the future was in short supply.

That trepidation must also be widespread in the wreckage of the meme stock boom of 2021.

Doing better by knowing nothing

Let’s think about the future by remembering the past – and previous market corrections.

By late 2009 the global stock market had bounced far off its admittedly somewhat scary lows hit during the financial crisis.

One could certainly quibble about valuation then, or the pace of the economic recovery.

Many of us also fretted, wrongly, about what quantitative easing – as we misunderstood it – would do to inflation or proper market functioning. (A dozen years too early, perhaps?)

However I did believe it was pretty clear all the shoes had dropped, as our US cousins say. The global economy had gone to breaking point and back. It had buckled, but it had not been busted.

The way ahead from the dark depths – however bumpy – was going to be up.

And after two years of writing about a relentless bear market on Monevator – from 2007 to 2009 – I was personally looking forward to some good times!

Yet online people called me naive or reckless for my optimistic take. The pain of loss was still fresh.

Worse, in real-life I learned of friends who had invested nothing for years – too scared by all the bad news.

Luckily those who’d set up Legal and General ISAs stuffed with the in-house tracker funds I used to suggest in those faraway days had mostly kept up their modest but meaningful contributions.

And buying equities cheap for several years eventually boosted their returns, as you’d expect.

One ex-girlfriend was even sweet enough to phone me around 2015 to thank me for getting her started with what eventually became her London house deposit. (I tutted and said it was all her own hard work. While secretly realizing yet again she’d been a keeper!)

However those I knew who tended to talk about “doing something clever” with their money or even “playing the markets” had often not acted so well.

Fear of investing when shares are cheap

You might run away from a bear or scream at a spider. But fear of investing is typically manifested in doing nothing.

In late 2009 a good friend admitted to me that’d he still not started with the regular index-tracking ISA investment plan we’d by then been informally discussing for – oh – five or six years.

He told me this ruefully after seeing the FTSE 100 index break through the 5,000 level again, in the summer rally of that year.

In an article on Monevator in July 2009 I wrote:

Normally you have to hold your nose when you buy because of equity valuations.

For the past six months, you’ve instead had to close your eyes and ears to bad news headlines.

But unfortunately my friend had neither held his nose nor closed his eyes.

He’d kept on doing nothing.

“I knew I should have invested when the FTSE was below 4,000,” my friend bewailed. “But everyone told me it was going to fall further.”

Ahem. “Everyone?” I thought to myself. (I was more diplomatic in those days).

All summer, he continued, he’d been waiting for a correction.

Then he’d swoop!

However in my view, anyone who fancied themselves as a tactical investor who didn’t buy something in March 2009 is never going to be a swooper.

Most people aren’t constitutionally built for making repeated active decisions. Even fewer – nearly all of us – aren’t any good at the timing, anyway.

There’s no shame in it. We just need a different plan. Probably one that automates the decisions we made in the cold light of a Sunday morning.

But this friend of mine struggles. He seems to have an unshakeable image of himself as a wheeling and dealing active investor, but he rarely acts.

Perhaps it’s because he’s an (excellent) entrepreneur. Action is his forte.

Whatever it is I can’t get through to him. He’s still much the same over a decade later. Begrudgingly and inevitably he’s finally made some investments over the years. But there’s still no coherent plan.

Lost in Neverland

Such people are stranded in an investing Neverland. For years they avoid committing. Instead they wait for a perfect tomorrow that never comes.

Or, almost worse, they eventually do buy into a market – but only when their fear of investing fades and it feels super-safe to do so. When everyone is loudly buying again, and the market has been rising for years.

They think they’re taking less of a risk buying in the good times. The opposite is true.

I had another acquaintance who was unlucky enough to make vast profits punting on tech IPOs during the Dotcom boom. From memory he made at least ten times his salary in a couple of years. Possibly more.

He lost virtually the whole lot in the subsequent crash. (Fortunately for his subsequent lifestyle, his wife cashed out her share of ‘the pot’ at the turn of a century, months before the fall, to invest in a lifestyle business in the Med. They went on happily to run it).

This fellow’s ups and downs cemented for him an unfortunate idea about investing. He talked about company insiders, daring bets, nose-tapping tips, and doing vastly better than the market – as well as taking vast amounts of risk.

And that was actually a workable strategy in the crazy late 1990s.

Right up until it wasn’t.

Similar would be the meme stock and crypto traders of a couple of years ago who had laughed at those of us who didn’t double our money in an afternoon.

What speculators do in these rare periods of euphoria works brilliantly, for a while. But they don’t realize they’re essentially exotic creatures in a very unique ecosystem with a short lifespan.

Sooner or later a meteor hits the rarefied climes, and everything changes.

Exaggerated threats

But isn’t fear of investing rational, then? If a generation can go metaphorically extinct like that?

I don’t think so.

What it misses – especially for someone like my entrepreneurial friend, for whom investing is a must-do not a passion – is that questions of when or what to buy today or sell tomorrow are really irrelevant to what investing should be doing in their lives.

They are not fund managers, nor even DIY investor hobbyists.

Their fear of investing is an emotion that arises mostly from their faulty investing worldview.

In reality, investing is just a means to an end for most. We work hard, save, and have spare capital to put to work productively for the future. We need our money to at least stay ahead of inflation over longer periods. We’d ideally like it to do better.

That’s it.

Going back to my friend, his surplus capital should be invested for the long-term. Money he might need in the short-term should stay in cash or short-duration bonds.

History has shown this is a winning strategy.

Follow it and what is there to fear?

Here’s what is likeliest to happen to a balanced portfolio after a bad year like 2022:

Source: Vanguard

My friend should focus on the yellow dotted line – while accepting that now and then some people will find themselves in the unlucky 1%. And he should invest accordingly.

Then he should get back to doing what he’s great at when it comes to making money, and doing what he actually likes doing with the rest of his time.

Everything else is noise for someone like him.

With friends like these…

I am not making my friend up. (I appreciate he sounds like a composite created for a blog post.)

But I don’t believe he’s that unusual.

My friend is no idiot. He’s a clever and capable businessman. He just hasn’t been able to get past the fairy tales spun by the finance industry to extract from us all the cash they can.

My friend is also unfortunate enough to have old university friends in the City – let’s call them the Lost Boys – who were mired in gloom in Spring 2009. They were convinced the stock market would plunge further.

They expressed this view loudly to my friend, who listened. Talking to them flattered his fear of investing – making it look instead like a sound strategic decision.

His Lost Boys were getting wealthy in the financial services industry. So they must have known what they were talking about, right?

Not so fast.

The sophisticated face of fear

While City folk can obviously give extremely valuable information in specific areas, in my experience they used to be terrible sources of general investing insight for ordinary investors because:

  • Your goals and their goals are probably very different.
  • They flock together, and most tend to think much the same thing at any point in time.
  • Many base their mood on what they’ve been paid recently.
  • Career risk (good and bad) influences their investing outlook.
  • Some don’t seem to understand reversion to mean. Seriously.
  • They are often somewhat-to-very rich, which gives them different profiles to most of us. (One very wealthy banker acquaintance of mine used to keep the bulk of his millions in bonds, and intended to until he stopped working. He didn’t need risk, he said. It was rational in its way.)
  • Nearly all of them got rich on other people’s money. They didn’t compound a nest egg out of their savings. They took earned 1% of hundreds of thousands of other people’s nest eggs

The younger City types I meet these days are admittedly a different breed. They have grown up in an era where it’s at last widely understood that passive investing usually delivers the best results.

But back in 2009, surrounded by his oldest pals and with a head full of ideas such as doubling his money in banks on the brink, it was difficult to persuade my friend that he should invest regularly and automatically into an index tracker, and to turn volatility over 30 or more years to his benefit.

Passive investing sounded to him more like a tax. Not like high-rollin’ share tradin’!

So he sat on the sidelines and did neither. Watching the market soar.

Fear of heights

Indeed when you’re not invested – or even when you are – rising markets can also encourage a different kind of fear of investing.

Now you’re not scared because markets are falling.

You’re worried because they’ve already gone up.

The Accumulator addressed this one in 2016, after the market had risen for what in hindsight seems just a scant few years.

Yet some readers were already nervous that another bear market must be imminent.

A crash is always a possibility. But the bigger danger is that trying to anticipate such corrections again turns you into a share trading punter. And not a very happy one at that.

As The Accumulator noted:

It’s easy to drift away from a simple and iron-rigid strategy into a messy, complex, ad hoc one where you’re constantly pulling all kinds of shapes in order to outguess the market.

Most of us should stick to a simple, automated, passive investing strategy and only get involved with some light rebalancing once a year, or when the markets have swung wildly.

But this stuff is only very easy in retrospect.

Looking back now it seems almost comic that anyone would have worried about the market getting carried away in 2016.1 Think of all we’ve seen since!

But that’s not to mock those who were. We considered it worth writing about, too, after all.

Number crunching side note

A good antidote to such nervousness after a modest 20% rally is to read old investing histories. You will hear them talk about index levels that seem to be missing several decimal places.

For example, here’s the Federal Reserve recalling the crash of the early 1930s:

The slide continued through the summer of 1932, when the Dow closed at 41.22, its lowest value of the twentieth century, 89% below its peak.

The Dow did not return to its pre-crash heights until November 1954.

True – a smidgeon over 44 was the low in the 1930s depression.

It’s also true that the Dow is breached 36,000 in 2021!

Yes, I understand you haven’t got 90 years to wait for a bounce back. You won’t need so long (absent a disaster like a communist revolution) but even that is not the point.

I’m simply arguing for perspective.

You wouldn’t panic that you hadn’t yet reached Glasgow just 30 minutes after pulling out of your drive in Bristol.

Set your investing horizons appropriately long-term, and you have more time to be less afraid.

Peter Panic

As I said, it’s untrue that nobody suggested my friend put money into the market back in spring 2009.

For my sins, I did. (I stopped giving advice like this years ago, unless my friends really push me).

I also recorded my views on Monevator, writing almost to the day of the low in March 2009:

The global stock markets have suffered their worse declines for several generations.

Ultimately, if you’re not trickling money into the markets at these levels then I think you might as well forget stock market investing altogether.

While I am proud of that piece, I admit I was lucky with the timing. And quite rightly the article was fully of caveats.

Still, in 2022 I could send my friend a link to that old article, note its date, and pretend I’m brilliant at calling markets like his City chums might have. (They’d have launched a fund on the back of it!)

Actually, I’d probably go up a notch in his eyes!

But doing so would be to do my friend a huge disservice. It would teach entirely the wrong lesson.

I’d simply become another Lost Boy in his Neverland gang. Whereas what he really needs to do is to finally take a mature and disciplined approach to long-term investing.

So I keep it to myself, and nowadays just nod as he bemoans his years of ill-fortune in the markets.

Epilogue: fear of investing in the property market

I’m sounding a bit too smug in this article for someone who saw pretty big market-lagging losses in 2022 and felt rotten about it.

So I’ll conclude with a reminder about how I’ve been shell-shocked myself.

Not with equities, but property.

Specifically, how the fear of investing in an expensive-looking London home cost me a fortune.

Long-time readers may remember it took me 20-odd years to buy my own place to live in. This despite my huge interest in the property market throughout.

Years before Monevator – in my 20s and early 30s – I was arguably even obsessed. The tail-end of this period crept onto this blog. I used to compute my own affordability ratios and the like, and swap anecdotes on the madness of the market on forums where we’d try to call down a property crash like some ritual cargo cult.

We didn’t think we were doing that, of course. We thought we were the sane ones.

And perhaps in another reality – where the financial system wasn’t bailed out in 2008 by near-free money and so there was subsequently a second Great Depression – we were. In that universe we could tell everyone in the line for the soup kitchen how we had seen it all coming.

But I’m glad I was wrong and we got the reality we did.

If nothing else, being optimistic is a nicer way to live!

I say that as someone who once calculated that not buying a two-bed flat in an up-and-coming area of London like my father urged me to – at the very bottom of the market in the mid-1990s – had cost me roughly three-quarters of a million quid.

You literally live and learn. But it’s better – and cheaper – if you can do so from someone else’s mistakes.

Invest sensibly and appropriately. Diversify. Never go all-in on anything.

And with that lose your fear of investing.

  1. The bond market maybe, given last year’s historic crash back to 2010 levels. []
{ 42 comments… add one }
  • 1 Mike Piper September 11, 2009, 1:58 pm

    “He’s got the idea that share trading is about daring bets, nose-tapping tips and outwitting the market, as well as taking vast amounts of risk.”

    Amazing how many people think that.

    When I tell people I’m a writer about investing and personal finance, more than half the time their question is about stock tips rather than about something meaningful (like asset allocation, how to rollover a 401k, or some such). Do you get the same thing?

  • 2 The Investor September 17, 2009, 6:20 pm

    Well, I basically don’t tell most people that I write about investing and personal finance to be honest Mike. I find it’s a no win situation.

    There’s several reasons why this blog is anonymous, but that’s most of them. 😉

    That said, I do talk to close friends about investment. But I often regret it one way or another!

  • 3 Ed January 17, 2023, 2:22 pm

    “Yet some readers were already nervous that another bear market must be imminent.”
    This hit a chord with me… I started my passive index investing journey in 2016 and was terrified to dip my toe in when a bear market was clearly imminent! I credit your website and articles with convincing a then late 20 year old to get started! My eternal gratitude. Your experience and knowledge has helped a lot of people even if you have never met them before!

  • 4 Barney January 17, 2023, 2:24 pm

    A great article. I recognised me in there somewhere.

  • 5 @ADT January 17, 2023, 3:49 pm

    One of my initial hesitations was not being familiar with any of the investment brokers, and not sure if I could trust them. Vanguard, Fidelity, AJ Bell… are these actual companies or just dodge websites? This is probably because I was used to handling money through traditional banks with physical buildings on every high street.
    What changed my mind was listening to a Jack Bogle interview on the Planet Money podcast. Once I knew the backstory of Vanguard, it made me a lot more comfortable with investing through their website.

  • 6 Ben January 17, 2023, 7:07 pm

    Was one of the forum’s housepricecrash.co.uk? They are still predicting the imminent crash. They remind of the followers of the Great Prophet Zarquon in Douglas Adams’s Restaurant at the End of the Universe. Not a great forum to get involved with if you want to stay objective about the market and avoid confirmation bias.

  • 7 xxd09 January 17, 2023, 7:31 pm

    Good article
    I was forced by circumstances to have to invest for myself being a self employed young professional
    I initially bought a very small house which I still live in today-just right for a retired couple!
    It was then the commencement an interesting financial journey for me via insurance companies,unit trusts ,investment trusts finishing up finally with index trackers. I was interested in pensions from the get go for some reason-paranoia of being poor?-reinforced by my wife,s status as a teacher where this fabulous perk was rather well done for her with no input required from herself
    I was rather unusual and very boring at dinner parties bringing up pensions because most people wanted to only discuss and invest in their own houses (Something people in the U.K. think they all know about as opposed to investing ?)
    After I had found somewhere that kept the rain out and my family warm I thought pensions required my main attention
    I never in fact acquired enough spare cash to buy a bigger house
    I did in time however discover the Vanguard Diehards now the Bogleheads blog
    It had become obvious to me that investing was a area of profound ignorance in the U.K. Americans were streaks ahead and discussed money openly at the level Monevator does it today
    I learnt enough however to raise 3 kids,retire at 57 and be able to travel-now 76 years old
    Perhaps /Probably investing at the Monevator level will never really catch on with the public. Someone at the Bogleheads website admitted that even in America where they have been at it for a lot longer than the U.K. that it is a very small proportion of the population who invest seriously
    However spreading the information is surely a worthwhile exercise but how far big inroads can be made is problematic
    The incentive obviously is with the self employed who have no one to look after them in their old age/retirement except themselves -public sector and corporate employees have investing/pensions all done for them-why should they bother?
    I rather think that serious investors will remain a very small part of the population but with Monevator I live in hope for better days
    xxd09

  • 8 Andrew January 17, 2023, 9:31 pm

    Everyone is looking for the quick win, which is understandable. Nobody wants to hear that *maybe* if you save and invest 30% of your take-home income for 30 years you can retire with your current standard of living.

  • 9 mr_jetlag January 18, 2023, 4:19 am

    Yep, get out of my head Monevator.

    Some people say 2023 will be a continuation of the bear market, others have called the bottom. Here I sit on the sidelines with enough cash for two years, equivocating.

    Q: What’s the remedy for terminal indecision? A: Let me get back to you.

  • 10 Prometheus January 18, 2023, 6:20 am

    Life is littered with one’s regrets.

    Great article (again) TI

  • 11 Matt January 18, 2023, 9:45 am

    I’ve been reading Monevator since I was 22, I’m now 34. A designer by trade, investing is all so alien to me, but I really appreciate everything I’ve learnt from this place. My father was a very run and gun stock market investor in the late 90s… investing a lot and losing a lot! This always made me slow and steady, and here I am still crippled by inertia and not doing anything. I’ve finally realised (your article the other day about returns a 30yo old could have at 60, kicked me into action), that I personally need help with all this and even the Vanguard LifeStrategy funds are a bit confusing. So I’ve drawn up an agenda and have a meeting with a recommended IFA next week to get the ball rolling. As they say, the best time to plant a tree (contact an IFA) was twenty years ago… the second best is today! Thanks for all your excellent writing I would be utterly lost in the financial world without it.

  • 12 Boltt January 18, 2023, 10:37 am

    @Andrew

    I’ve been following your home buying musings for a while – what are your current thoughts and plans?

  • 13 Getting Minted January 18, 2023, 11:22 am

    Investing when you have the money available to invest has been my approach. Regular monthly investing or the occasional investment of small lump sums spreads the risk of investing at the wrong time. When I have had a larger lump sum to invest, I did sometimes consider spreading the investment over twelve months, but I then chose the simplicity of investing it straight away. It helps if you can ignore short term movements in the market during the year. Markets have mostly gone up when you look at the full calendar year. Only 2001, 2002 and 2008 have ended with losses of over 10% for me.

  • 14 Phil January 18, 2023, 5:51 pm

    @The Investor and anyone else who has a view.

    I have a friend (like The Investor, also a real one rather than a made up or surrogate one!) who is the product of a lifetime of investment inertia and paralysis.

    He’s 62, earns c£2k per month, lives in a rented flat, his health is not the best, he has a small DB pension (c£5k per annum, I think) which he can draw when he’s 67 and has c£50k in cash – an inheritance – in the bank but no other assets (ie. no ISAs, shares, trackers, private pension, house etc).

    He’s increasingly worried about what happens when he stops working (he’d like to stop when he turns 63 but understands he’ll having to work until he’s at least 67, health permitting) and his future standard of living. His monthly outgoings are c£2k so other than his inherited cash pile, he has no financial buffer to rely on.

    Over Christmas, he asked for my thoughts on what he should do with the £50k given his situation. He clearly doesn’t fit the ‘invest for 30 years, reap the rewards 30 years later’ model and his £50k cash being whittled away by inflation isn’t a good look either.

    Frankly, I didn’t know what to suggest and told him so. This article has prompted me to seek out the views The Investor and regular readers of this fantastic resource. Realistically, what are his options? He’s a lovely guy who I’d like to offer something a bit more helpful than a sympathetic shrug so any thoughts gratefully received.

    PS @The Investor I read your series of articles about paying for later life care over the Christmas and New Year period. Superb stuff, necessary and required reading. Thank you.

  • 15 ballard January 18, 2023, 7:19 pm

    @Phil

    I’m conscious of TI/TA’s usual disclaimer that they can’t offer individual advice.

    However, maybe a different question would help your friend, namely what would their ‘floor’ be comprised of once they retire? No harm in asking that, and it may be better to start there, check state pension entitlement etc, then see whether equity investments also have a role to play.

    For anyone not familiar, I’m thinking of the various monevator articles about taking a floor/upside approach to planning retirement income.

  • 16 Phil January 18, 2023, 8:05 pm

    @ballard Thanks very much for your input – it’s much appreciated

    I fully understand TI/TA’s reticence about individual advice. I hope they and others could see beyond the details of my friend’s situation and perhaps offer some thoughts/suggestions about different ways of approaching or looking at this kind of situation (someone with no assets beyond some cash, limited non-state pension, approaching retirement) which is likely quite a common scenario.

    Indeed, you have done just that for which I am very grateful. I vaguely recall reading those floor/upside articles and will go hunt them out and refresh my memory. Thank you.

  • 17 Curlew January 18, 2023, 8:07 pm

    @Phil
    Can’t give advice but on the face of it your friend is in real difficulty: spending £24k per year but state pension and DB will only give about £14-15k, leaving him say £9k per year short. Drawing down on the £50k sum at the benchmark 4% gives another £2k per year but he’d still be looking at a £7k gap. This suggests he’ll have to cut back (if possible) and/or carry on working.

  • 18 ballard January 18, 2023, 8:30 pm

    @Phil

    No problem, and I didn’t mean to be harsh with the disclaimer, just thought I’d save TI/TA mentioning it…

    On ‘confirming the floor’ I was initially thinking of things like NI gaps for state pension, i.e. checking whether any need filling with voluntary payments.

    But the DB pension is also worth a thorough investigation. Various questions worth checking: are they still a member with the option of making voluntary contributions? Is there a lump sum option and is it good value? What are the penalties/benefits of taking the pension sooner/later than the normal age? I imagine many members wouldn’t know all these details unless prompted by a friend/expert.

  • 19 Boltt January 18, 2023, 8:42 pm

    @phil

    Tough situation, especially with potential ill health and having a little too much to claim benefits.

    If I was him I’d try to use the £50k (plus whatever i could save) into somewhere I could live as a pensioner.

    It depends on what rent he is paying – would he be eligible for some form of sheltered accommodation (the rents are pretty low v open market)

  • 20 Learner January 19, 2023, 3:12 am

    Nightmare. Assuming private rental, I wonder if they have looked at rental assistance or state housing options to minimize expenses in retirement. Perhaps CA can advise. A 30% shortfall (per @Curlew) requires a big adjustment in circumstances.

  • 21 Reddot January 19, 2023, 7:09 am

    @Phil

    I come from a family who only believed in the security of banks and fixed deposits and am often called upon for similar needs.

    Of the £50k, I’d create a Chase current account for him on the app within minutes and stash say 10-20k in there. Then open a 1-year FD (eg Investec 4.19%) for say 30k while the interest rates are still high. Maybe 5k in a 40/60 conservative portfolio if he has the appetite.

  • 22 Reddot January 19, 2023, 7:10 am

    **Chase current & savings account. Instant access savings account currently 2.7%

  • 23 Bill G January 19, 2023, 10:34 am

    @Phil Please don’t view this as Dickensian advice but has your friend considered Alms Housing post-retirement?
    Actual dire need for housing is not the only consideration for alms housing charities. A well-balanced social group is needed to make an alms house a success, which is not quite as simple as having wealthier residents to subsidise the poorer.
    As a general rule applicants must be capable of independent living and be aged 75 or younger.

  • 24 The Investor January 19, 2023, 11:45 am

    Thanks for the nice comments all. Glad some liked it, I realize it went on a bit 😉

    A few necessarily brief replies/catch-ups.

    @Ed — You’re welcome. Congrats on getting started!

    @Barney — Cheers, we’re all in their somewhere. (Not so difficult when the article is 3,000 words long perhaps 😉 )

    @ADT — Interesting observation. It’s hard for me to remember what that felt like! (Here’s a relevant series for anyone reading who feels similar: https://monevator.com/how-to-buy-index-trackers/)

    @Ben — No, even I thought they were a bit extreme though I liked their new service. It was mostly The Motley Fool, when it had a big forum/community.

    @xxdo9 — That’s incredible you still live in your first house, if I’ve read you correctly? Talk about avoiding the hedonic treadmill! (Though I’m sure it’s a nice house. 🙂 Nice memories now too I bet. Reminds me of Buffett.)

    @Andrew — Yes, it is understandable but it isn’t right, I guess is the issue. It’s like when people tell me they voted for Brexit because all the heavy industry went. Yes, it’s understandable to be upset about the loss of heavy industry if that’s where you plied your trade or you think it’s important. But that *feeling* doesn’t make it right. Same here. We’d all like to make a quick killing. It’s hard enough to do it when you’re on the markets 24/7 as I have been for the past ten years… mostly you consider a quick scalp a good thing. The chances of newbie stumbling into the next Tesla on their all-in trade because someone told them about it is extremely low. Not zero, it must happen. But it’s not a strategy.

    @mr_jetlag — Hah!

    @Prometheus — Cheers!

    @Matt — Glad you’re finding our articles useful. My only suggestion would be to remember that after 20 years, taking it slowly at a pace that feels comfortable isn’t going to kill anything. E.g. Drip feed in money if you like, even though the expected return would be lower. The important point is to find a strategy you’re comfortable with and lets you sleep at night. If you’re anything like most of us, you’ll forget about your money oscillating around most of the time and eventually wonder what the fuss was about. 🙂

    @Boltt — I believe @Andrew bought?

    @Getting Minted — Yes, I do agree ignoring short-term movements is the nearest thing we have to a panacea. Unfortunately not easy for us investing bloggers though? (Although you update less frequently than we do… 😉 )

    @Phil — As has been said, it’s very difficult for us to give individual advice for various reasons, ranging from practical to qualifications to being seen to offer financial advice, which we can’t. (It’s different for readers, because they are just a comment. Whereas we are here, every day, with a URL etc). I think others have given some food for thought here (which I won’t go into individually), which is great. What I would say is that whatever someone does they have to feel comfortable with. Having a wodge of cash at that age when you’re never going to see any money coming in again (in size) is a comfort. Yes it’s painful with inflation this year, but for most of the past decade or more it would have been a bit ‘meh’. Terrible in terms of opportunity cost (not investing) but not totally ravaged by inflation. Lifespan is tricky here too. If your friend lives for another 30 years then not investing will have been a financially poor decision perhaps, but if they live for 10 then arguably it won’t have moved the dial much (especially as you have to spend it to benefit) or even worse if we have a bad run in the markets. Your initial post alludes to this though.

    On the surface it does sound like at least as much a budgeting/lifestyle issue/challenge as an investing one — arguably much more so. If it were me I’d be reluctant to turn all income off, that’s for sure. As I often say, it doesn’t have to be all or nothing. Even moving down to (say) £500 a month is £6K more pa than otherwise, though of course you’d have to look at how this interacted with benefits etc, which I know very little about. (As I say, definitely NOT QUALIFIED to give personal advice here!)

    Good luck, they are lucky to have someone paying attention. 🙂

    p.s. The care series was by my co-blogger, The Accumulator. It was a labour of love! Glad you found it useful.

  • 25 Naeclue January 19, 2023, 2:01 pm

    @Phil, as others have said it is very difficult to advise without knowing all the details, but I would have thought a good option would be a SIPP. As he is still working he can contribute 100% of earnings to a pension. Even if he just kept everything in cash within the SIPP, as a basic rate taxpayer he would still gain due to the 25% tax free element he could draw. Every £8000 he puts in would pay back £8500, a 6.25% uplift. Vanguard would be a good option for this as they have a very low 0.15% charge and no other fees other than normal fund management charges and frictions. They have an investment grade short dated bond fund he could use if he was nervous about investing. Not totally risk free though (down 7% over the last year), but I have a feeling their interest on cash is reasonable at present (have asked them and will report back), although I am not sure any cash would be covered by a FSCS guarantee. Similarly the bond fund would not be totally free of credit risk.

    Should your friend need state benefits of some sort he will likely get nothing with £50k sitting in the bank, but money sitting in a pension fund is I believe treated more favourably.

  • 26 Naeclue January 19, 2023, 2:26 pm

    To paraphrase St Augustus, “Make me an intelligent investor, but not yet”.

    The first chapter in Ben Graham’s The Intelligent Investor is “Investment versus Speculation: Results to be Expected by the Intelligent Investor” and goes to some length to distinguish between the two activities. In short, he frowns upon speculation as it is highly likely to detract from long term returns. Dithering about when to invest is a form of speculation.

    Although old, I would still consider Graham’s book worth reading for those who are struggling to invest or just don’t know how to do it intelligently. A good clue is that if you are attracted to NFTs and/or other crypto junk, fine wine, meme stocks, expensive actively managed funds, etc. you are not investing intelligently. Neither are you investing intelligently by leaving all your money in a bank, unless you really need to for some reason.

  • 27 Matt January 19, 2023, 3:30 pm

    Thanks @The Investor. That’s useful advice. Starting from zero, my plan is to draw down £10k per year from my company and let our IFA advise on how best to invest it. Whether that’s one deposit per year or divided over each quarter I’m not sure what’s best.

    This may be a silly question, but how safe is your money in terms of the financial firm/IFA you are using? What if they go bust or have a fraudulent employee? Can you bypass them to access your funds? Have I watched too many films?!

  • 28 ballard January 19, 2023, 3:37 pm

    @Naeclue – yes, the current interest rate for cash in a Vanguard SIPP is reasonable at the moment, at approx 3%

  • 29 SemiPassive January 19, 2023, 4:12 pm

    Regarding Phil’s friend, Naeclue said “They have an investment grade short dated bond fund he could use if he was nervous about investing”
    Agree, that is probably where I would advise someone in those circumstances, whether sticking the £50k into a Stocks & Shares ISA or preferably a SIPP to get the tax relief uplift.
    Especially with an approx sub 5 year time horizon and little appetite or room for risk. I don’t even think you would significantly underperform the stockmarket in that timeframe- just look at the Vanguard projections from the article last weekend, e.g. UK credit and EM bonds likely to be on a par with equities over the next decade, with less income volatility than equities.

    When the time comes to retire and drawdown the person could either take the natural yield of the bond fund (if in an Income fund version), which will be something like 5% at present, or use to buy an annuity at 67 or whenever they choose to stop working.
    Especially if they have ill health risk factors to get a boosted annuity rate.

  • 30 Gentleman's Family Finances January 19, 2023, 9:38 pm

    Thought provoking.
    We have a bit of a taboo around money and savings and investments – for good and bad reasons.
    But the result is that you either learn through copying or through your own mistakes. Unfortunately, copying might end up losing you more money especially in a world of influencers on twitter, Instagram and what not.

    Is it any wonder many of those who are FI so strongly advocate financial education for school kids – the world of money is like running the gauntlet, everyone is out to pick your pocket.

  • 31 G January 20, 2023, 8:08 am

    Really enjoyed this piece and loved some of the evocative metaphors too.

    The vast bulk of my investing has been via a personal pension and I’m quite grateful to outsource it someone else for two reasons. Index funds don’t wholly suit my values profile (I work in a strongly ethical values led field because it aligns with my values – and I’d like my investments to do the same too) and I have little interest in turning investing into a hobby (I enjoy reading about those who have though). Thankfully, the personal pension fund matches my values pretty well.

    I probably still have too much in cash as a rainy day fund (5+ years in running costs) – but it means I could quit work tomorrow without worrying about sequence of returns risk (largely and inflation aside obviously). Even buying a house was seen as tremendously risky by some parts of the family, and an aversion to debt meant I saved up to buy our modest place mortgage-free. The result of a lower working class upbringing.

    In all other ways, I very much identify. I’m Kipling levels of sanguine when the pension swings 15+% up/down over the last few years (translating to tens of thousands of pounds) because this blog has taught me about averaging, thinking long term and I’ve deliberately restricted my ability to mess around with it. I’ve played around with riskier investments, like peer lending and thankfully come out unscathed but lessons learned.

    I was reflecting with another FI friend the other day about the difference it makes to your life and your pursuits. If I had one aspiration for humanity, it would be that everyone could be FI (hopefully without so much of the decades of struggle to get there) or at least have the first level or two of Maslow’s hierarchy of needs covered . What might it unlock for our species? A massive flourishing of creativity in the arts and sciences perhaps? Or perhaps it might be more like WALL-E.

  • 32 Jon January 20, 2023, 2:47 pm

    I understand and can see the purpose of this article and agree with it – particularly for younger investors with a long time horizon – to invest wisely for the long term and “seize the day” but what you have to remember though is it is scary for newer investors – some more than others if I can explain as it may just make others be slightly careful before rushing headlong in.

    When you think of a new investor most would tend (more often than not) to think of someone fairly young, say 20’s or 30’s but like myself in my nearly mid 50’s when really I started DIY investing, this may not always be the case and then it becomes doubly scary (as you don’t have time to make any mistakes/recover from bear markets.) Then on top of that a couple of years ago I HAD to finish working due to health reasons which obviously makes it way more scary as now in “enforced decumulation.”

    Didn’t start “investing” until latter part of 2021 (I had to stop working in 2020) when mind was then sharply focussed on trying not to lose to inflation with all cash savings – apart from couple smallish personal DC pensions (no work place pensions.)
    It kind of forced me into it as felt I had nowhere to go now but losing on cash and possibly facing a quite bleak future due to this.

    So with little knowledge I read online on various websites about investing in the stockmarket. Unfortunately I had not found Monevator at that stage. One seemingly well respected american website in particular was saying, in 2021, things like – “invest in this index fund/ETF and could easily make you a millionaire” and showed graphs over quite long time frames showing big upward trajectories – I’m sure many of you saw them – quite convincing and probably true over those time frames. Most of these were in american index funds like the S&P 500 and tech funds following the NASDAQ. It was really inferring that these were the only funds to be invested in to make a good return.

    I had read about passive index funds but not aware at that stage that investing in total market global index funds for basically the “average” market return (less costs) was the most sensible way to go (and had no knowledge whatsoever of bonds and still know relatively nothing about the ins and outs of them now.)

    I needed to invest large sums as I don’t have the time to drip feed money into the market over years to spread risk via pound cost averaging. So I then set about investing my cash funds into mainly index funds and intending to invest most of it, except a cash buffer for perhaps 3 to 5 years or so (at that time not completely decided.) This took some time as it involved some cash ISA transfers with some not going smoothly (and also transferred pensions to SIPPS as thought they would possibly perform better and at lower cost.)

    However after I had invested approx. half my funds (6 figures) in mainly american index funds such as the S&P/tech funds (except pensions in VG Lifestrategy) and a bit in developed world funds (excl. UK/Emerging markets) based on mainly what I had read, from what are regarded as pretty reliable investing websites, in 2022 we all know what happened. At one point I was losing tens of thousands – not as much now but still in tens of thousands.

    Due to this I have now stopped investing the rest and left it in cash and in a quandary as what to do now as this has scared me off investing at this time. I have not sold out anything though as it is “done” and don’t want paper losses to be realised. Adopting a wait and see approach with them for the time being. Feel that if they went back to somewhere near what I paid then I should sell them and maybe put back into global index funds (and possibly bonds) but not sure if that is the right strategy so pondering. (I know people will say see an IFA but I’m afraid I can’t trust them one bit. (In my younger days when I took out pensions and a couple of S&S ISA’s through them, I was not aware that I was being well ripped off with secretive hidden fees over many years even though they were doing nothing for me and I no longer had any meetings with them. They never performed very well either, probably due to this and they have all since been transferred out.)

    Trouble is there is so much conflicting information out there. Vanguard and others are always sending me articles (as I have a Vanguard account among some others to spread risk) about why you should still be investing and how to “weather the storm” and how somebody (lets call him Jonny Disaster as can’t remember the name they used – maybe based on me!) has invested at completely the wrong time, every time, although he has still made lots of money etc. etc. (but probably had 30 or more years in front of him) and seemingly they always put a positive spin on it all (but I suppose they would as they are biased – they want our money don’t they, however good they may be at making predictions about the markets?)

    Obviously I feel I shouldn’t have invested at the time I did and wish I hadn’t as I wouldn’t have lost tens of thousands – my funds would still have increased in my cash savings/ISA’s as I was always on the ball using comparison sites and moving cash accounts for the best rates (even if losing to inflation this would be a minor thing now.)

    I know if I had found Monevator sooner and followed your advice – invest in global funds for long term and possibly bonds as well as some cash, I would have lost less but would still be losing at this time all the same. So it just does not seem sense to me at the moment to now invest all the rest at once and neither can I see the point of drip feeding it in at this stage of my life – bit late in the day for drip feeding for me to do much good.

    I know this is so called “market timing” and we should invest when the market is down but it feels that it could go further yet and counter intuitive to putting further “large” sums in. I also don’t want over complicated investing with lots admin and portfolio maintenance. I understand basic asset allocation and spreading your risk (due to finding Monevator mainly) with maybe putting some into uncomplicated bond funds but don’t want complication like 5% gold or commodities or whatever. What good is such low percentages of anything really going to do for your portfolio at the end of the day except a slight cushioning effect some years but may just be a drag in other years anyway? I don’t feel they would make much financial difference at the end of the day. I know there are no guarantees with equities but from the long term past history, I believe that they have always gone up more years than they have gone down so no definitive guarantee but it’s all we’ve got to go on. It just seems its predicting which year or group of years when equities will be poor that is the problem – we don’t need IFA’s, we need a clairvoyant – anybody know a good one! The real worry for me is a decade or more of losses or low/no returns. That would be a “killer.”

    From many other informed sources such as Morningstar etc. I have read articles that 2023 and after (although possibly better than 2022) may not be a year for equities with sort of predicted flat or little gain (and probably least likely to do well are US ones) but may be better for bonds but who really knows? Others saying there could be a decade or more of low or flat equity returns which is really horrendous for decumulators. Seems from what many said in 2021 that it is all guesswork. I know this is why you should invest as per Monevator and leave it to compound for years if you have the time left – but for anybody like me trying to invest for return and needing to live from some of it with a shorter time to invest then it is a difficult and very frightening situation and difficult to see much of a return. Unlike maybe younger investors who do aim/think they want to make a killing, all I wanted at my stage, was to gain slightly more than inflation so that as a decumulator and all in cash, I wouldn’t lose out and see my retirement go up the swanee due to increasing living costs. Maybe bonds are some of the answer in future as prospects for them have now increased but need to get my head around these more. I have read the latest Monevator bond articles but still seems a bit alien to me – I could invest in bond “funds” through a platform but I do like to understand what I am investing in and finance is obviously not my forte!

    So as an older first time investor be very careful what you do or you could be even worse off than invested in cash with not much time to recover losses. Reading more is unfortunately definitely essential and not just listening to a few online financial websites – some of whom may be biased/have their own agenda like pushing active stocks – unlike Monevator who provide very informative/unbiased/well written articles (well so long as as you don’t read too much about TI’s naughty active antics – just jesting!)

    Good luck to all on your journey!

  • 33 Barney January 20, 2023, 6:27 pm

    @ Jon. “Good luck to all on your journey!”

    Well after reading that, I’d be surprised if anyone wanted to go anywhere. Perhaps you should check the histories of the Ftse, S&P, & Dow. Stock markets always bounce back,……. eventually.

    Like life, It’s all a gamble, and you shorten the odds if you start early.
    That’s why a finance qualification should be compulsory in school, college, and uni. Which may improve the 15% with no savings, and the 35% with less than £1500. So, if it all went pear shaped, as they say, you’d have plenty of company.

    Don’t forget, if you do make it to old age, the problem then is how to keep it, pay for your pine box, and leave just £250 in your current account.

  • 34 Matt January 20, 2023, 6:47 pm

    I’m 34 and plan to start investing 10k a year. Interested what folks here would do if like me you don’t have much knowledge. Would you use an IFA or a mid-risk Vanguard LifeStrategy?

  • 35 Barney January 20, 2023, 7:32 pm

    @Matt,..The first thing I’d do is to view the 5 bite size videos by Lars Kroijer

    here……..https://www.youtube.com/watch?v=gM4KEJQ_Z5U

  • 36 Northern Southerner January 21, 2023, 12:23 pm

    Ever thought of producing an article about a/the fear of pulling the decumulation trigger? Is it just me? Never had any qualms about trickling money into trackers over the long term and through all market conditions. But now I’ve pretty much reached the other end of the telescope I can’t stop looking at the highest point my portfolio reached and thinking I should wait until it gets back there at least before pulling that “trigger”. Any thoughts?

  • 37 Grouty January 21, 2023, 2:08 pm

    @Jon, it may not feel like it now but it sounds like you’ve done the right thing, market declines are temporary and as long as you don’t sell, and they are diversified they will come back. Also, while it’s not always the case markets seem to recover in not much more than 2 years, so hold the thought that you’ve lost your money.

    Also remember that while it may feel like you’ve a lot in the US, the US makes up the majority of the global equities market and a lot of the companies that make up the US stock market make a lot of their money from around the world, so don’t panic and think you are not diversified, you likely are, just not as much as you might read you should be. Remember perfection is the enemy of good!

    On your age and feeling that you don’t have time to recover, even at 50 you are likely to live for 30 odd years, that’s a long time and plenty of time for investments to recover as long as you are not a forced seller, which if you’ve got some in cash to live off, as it sounds like you have you won’t be.

    Finally, moneyvator is a great resource, I’ve been reading it for years and have learnt so much from it, but it’s not the only one. I would thoroughly recommend looking at Meaningful Money as well, it’s a podcast / YouTube thing that’s run by a fantastic guy called Pete Matthew, that provides so much free content and info on personal finance, financial planning, saving and investing that pretty much anyone will learn something from it. It’s got ‘seasons’ covering various life stages and I’m sure there will be info that you will find helpful.

    Im not in anyway linked to it but I would say that between moneyvator and meaningful money the stuff I’ve learnt has changed my life.

  • 38 Matt January 21, 2023, 7:40 pm

    @Barney – thank you those videos were so helpful! Based on that I’m going to go for a Vanguard LifeStrategy 60/40, invest 10k a year for as long as I’m able to, and largely forget about it for 30 years.

    Would a financial advisor help me out on a consultation fee in future if I have questions, if I’m investing independently?

    Also can anyone explain what it means by a product being ‘ISA ready’? Does it automatically shield your money that’s within the ISA allowance, or do you have to opt into it?

    TIA.

  • 39 Jon January 22, 2023, 9:51 pm

    @Grouty, – thanks for your kind words and advice. I agree with you and this article – I wish I had both come to investing sooner and found Monevator sooner, like you did, and then maybe had 35/40 years or more to accumulate.

    I do absolutely think it’s the best thing to do to accumulate and compound your pot – especially if you have some years before retirement – definitely not best to keep majority in cash like I did for most of my life – wish I had drip fed it in each month as I earned. I am financially minded in other ways and have always budgeted and been pretty much a frugal saver, not a “waster” but back in my day was always told the stockmarket was just “gambling” and should be shied away from whereas it isn’t these days with index investing having come more to the fore.

    Panic really that I could no longer work forced me to switch about half my savings/ISA’s into equities at just the wrong time before the market tanked resulting in fairly big paper losses. Then I read a lot of pessimism around the US market from some commentators about a decade of poor returns there and does nothing for your physche when you are in mid 50’s or older! BUT got no doubt they will recover as always at some point probably when Putin’s savagery ends, inflation is back under control and the world gets back to some sort of normality after covid/supply issues etc.

    Thanks for the info on Meaningful Money podcast – I’ll look at that as wasn’t aware of that one. I’m pleased that investing has changed your life for the better and that you found these excellent resources, like Monevator, earlier in life as they really help when you are a novice.

    @Barney, thanks for your observations. I agree with everything you said even if my post didn’t sound that way at the time. (Also think you gave great advice to @Matt re: Lars Kroijer – an inspirational guy. I read about him via Monevator article he wrote on global index trackers and since read more about him. He must have taken some stick being a former hedge fund manager and then telling the world that it isn’t the way to invest.)

    I did not ever want/intend to dissuade anybody from investing but just a warning really not to jump in with both feet too soon and without much investing knowledge especially when you are in retirement (or early forced retirement like me) but when I did read my post back it undoubtedly sounded over pessimistic – think I was mulling it all over in my head and having a bad day!!

    I am totally on the same page about financial education at school etc. and this probably would be just (if not more) as useful in life than trigonometry, quadratic equations and algebra – well unless your career is in science, engineering, construction etc. as the majority of us could benefit from financial and investing knowledge.

    I know recovery will come someday soon – I just hope it comes before I’m in my box, as I’d also like a pine one with perhaps, gold handles (I don’t fancy a balsa wood one!!)

    All the best to everyone.

  • 40 Matt January 23, 2023, 1:19 pm

    @Jon You didn’t put me off of investing! In my twenties I couldn’t see past the immediacy of the next week, let alone the next few decades. Monevator has given me the insight to think about the long game. It’s a strange feeling parking a lot of money in the ethereal and wondering what might happen to it in the future… but I’ve come to realise that the alternative, AKA not doing anything, is probably going to leave me worse off.

  • 41 Barney January 30, 2023, 2:25 pm

    @ Matt…Would a financial advisor help me out on a consultation fee in future if I have questions, if I’m investing independently?

    An IFA will always help you out…..for a fee, it’s how they survive. But if you are going to invest in one passive fund, or more, why would you want to consult an IFA. You can obtain a great deal of info on line, and of course objective comment here at Monevator.

  • 42 Matt Coppolaro January 30, 2023, 6:08 pm

    @Barney – Thanks good to know. I will go independent for investing for sure. I had a thousand small questions that in fairness an IFA answered free of charge during an initial call. I know you can find all this online but a novice doesn’t always know what they should be asking!

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