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Weekend reading: Higher calling

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What caught my eye this week.

One reason you hear more people complaining about high taxes these days is because more people are paying higher-rate taxes.

At the start of the 1990s, just 3.5% of UK adults were in the upper tax band. That wasn’t exactly fun – and there was a recession coming, with a big housing crash imminent. But least those 1.6 million higher-rate payers could console themselves they were members of an earning elite, of sorts.

Loadsamoney? Not any more. We’ve only just begun to slog through a six-year freeze on tax thresholds that is set to send the number of higher-rate taxpayers to 7.8 million by 2028.

If nothing else it should be a boom time for tax accountants.

Check out this graph from the IFS:

Source: IFS

The higher-rate threshold today starts at £50,270. For the same share of the population to be paying higher-rate taxes as were in 1991, the IFS calculates the threshold would need to be nearer to £100,000 in 2028.

As things stand it will be… £50,270.

There’s an argument that a broader tax base is more equitable and sustainable, I suppose. But good luck raising it in the midst of raging inflation, rising mortgage rates, and disquiet over the state of the public services, especially healthcare.

People can see their money doesn’t go as far as it used to with their own spending, and they’re impatient with what they’re getting for their taxes too.

The UK economy is stagnant and ONS figures show productivity growth has slipped to the lowest level in a decade. (At least energy bills are set to fall – a windfall for both our wallets and also the State purse, given the energy price guarantee.)

Thanks to high inflation and the frozen thresholds, some will even find their incomes go nowhere in real terms1 over the next few years – yet they’ll be taxed more heavily on the top slice of what they do earn, because they’ll be dragged into a higher-rate tax bracket.

It could be you

It’s not a pretty picture, but we only recently did politics so let’s leave that for another day.

Instead I wonder how closely Monevator readers reflect the national statistics?

My instinct is we’re overweight higher-rate payers. Though I guess perhaps a heavier skew to retirees might bring the number back down?

An anonymous poll! Please select according to the highest official rate of UK income tax you pay:

This poll is no longer accepting votes

Which tax bracket are you in?

So much for where we’re at today. But if you’re currently a basic-rate tax payer, do you think you’ll be dragged into the higher-rate bracket by 2028?

And if you’re already paying higher-rate taxes – perhaps even the marginal rates the crazy system introduces – are you taking evasive action (such as diverting more salary into your SIPP) to curb the damage?

Let us know in the comments below, and have a great weekend!

[continue reading…]

  1. That is, inflation-adjusted. []
A flush of cards, with the caption ‘cards on the table’, as I candidly talk about the limits of investing articles

Like nearly every publication that talks about active investment ideas and strategies, our new Mogul membership articles will come with disclaimers.

Some may see this as a cop-out. Or as arse-covering.

And on the latter they’d be right, at least in our case.

Our articles cannot be personal financial advice or guidance. It should be obvious that an anonymous website with anonymous readers cannot give individual financial or investment advice.

But it’s not obvious to some people. Hence it’s prudent and important to have a disclaimer.

However I would object to the argument that it’s a cop-out.

It’s much more complicated than that – and as Monevator has always been about educating people in (excessive) depth, let’s get into why.

Capital at risk

To me, it seems pretty clear that you shouldn’t expect to find can’t-miss winning lottery tickets in the guise of 2,000 word posts on a free or low-cost investing website.

Tens of thousands of people are paid six-to-seven-figure salaries to beat the market, and the vast majority of them fail over time. So don’t expect any better from a low-cost newsletter.

Nevertheless, as a past and present member of several investment info services myself, I’ve seen that – again – some people think otherwise.

Let me be clear: if you’re thinking of signing up as a Moguls member to secure a string of winning stock tips or market timing signals, then please don’t.

I say as much in the marketing. But if you missed it then please do feel free to cancel.

Because while I’m uncertain exactly how the content will pan out over the months ahead, I know a guaranteed way to beat 95%+ of investing professionals is not on the menu.

I’ll talk about my share ideas. Definitely! But I won’t claim they will be sure market-beating stocks.

This is not arse-covering. If you’re the type who’ll be at home with Moguls, then it should be common sense.

Investing: I did it my way

Now, you might be wondering exactly what kind of self-defeating message I’m delivering here?

Are we over-subscribed with members already? Because as a pitch to sign-up, I can see this seems straight out of Reginald Perrin’s playbook for ‘Grot’.

But not so fast.

If I wasn’t writing Moguls myself then I’d be joining it. Truly! This blog has been around for 17 years, and I’ve got to know and like its writers’ style and perspective…

And as for myself, for more than 20 years I’ve learned almost everything I know about investing from such articles, as well as books, forums, Tweets, and even the occasional YouTube video.

Not to mention the thousands of company reports and updates I’ve digested.

Without all this material made available for mass consumption, then I’d be none the wiser.

Indeed, for many of us investing would remain the preserve of opaque professionals charging a fortune for exposure to the markets.

(Without public information how would we even learn about index funds?)

Furthermore, I personally believe the right kind of person – with the right mindset and more than a little effort – will do better picking their own stocks and funds than by paying the average advisor or fund manager to do it for them.

Partly because it can be cheaper. Partly because we can be more nimble. But mostly because you and they have different incentives – you care much more about you – and different time horizons.

You have to love the challenge though, because the thrill of the game is the only certain payoff. And it helps to be a little obsessed and weird, too.

That’s all a long way from saying that I believe any particular article – mine or anyone else’s – should be taken a personal directive to buy and sell.

Learn to fish for yourself

The point is to read and learn as much as you can – with an increasingly discerning and skeptical eye – to make ever-better investment decisions for yourself.

As Morpheus in The Matrix might put it, by the time you’re able to fully parse an investment idea, the last thing you’ll want to do is to follow it blindly.

And that is where I’m hoping to contribute with my Mogul articles for Monevator.

Information and education – and imparting what I think and I’ve learned, for what it’s worth – partly illuminated with examples of where I’m investing and what I’m seeing.

Nothing more. But nothing less, either.

Reasons to be wary of everything you read

Let’s really ram this home by running through a laundry list of why it’d be silly to think a sensible route to riches is to invest blindly based on stock tips you get via email or on the Web.

Firstly, investing skill is rare (and may be non-existent)

The biggie. It’s been widely shown that the ability to beat the market through stock-picking is at the very least uncommon. Even winning fund managers tend to mean revert over time.

And while I’ve seen research that finds professional managers might slightly outperform in aggregate before fees (with less skillful punters making up the difference in this zero-sum game) such an edge is evidently unevenly distributed. (A subset of managers mop up the pre-fee wins).

Which is exactly why most people should invest the bulk of their money passively in index funds.

Now, given skill is rare, what are the chances that you’re reading the fundamental analysis of someone who has it?

The Seeking Alpha website has had 17,000 contributors over the years. I’m not aware that any has turned out to be the next Warren Buffett.

Other investing opinion outlets are similarly diverse.

As I said in my introduction, that doesn’t mean I think these articles are useless for those who invest actively – whether as a hobby or to try to beat the market.

But it’s obviously naive to think they are all serving up winning share ideas.

(As for short-form social media influencers – finfluencers – maybe you’d do better to short them.)

What about me? Do I have skill? My jury is still out. My confidence was shaken by a rotten 2022.

So read my stuff with that in mind. I may prove to be at best a lucky coin-flipper.

Winning stocks are heavily skewed

Anyone who has run a traditional stock portfolio for a long time knows that a small number of their decisions will deliver the majority of their returns.

The father of value investing Ben Graham generated most of his excess returns from a single growth stock, GEICO.

My own portfolio’s performance was strongly juiced by a couple of multi-bagging shares. (And it should have been further boosted to the moon by one that I fluffed, Tesla.)

Small cap investment writer Richard Beddard has commendably published a market-beating stock portfolio for years. You can see that just a handful of his selections delivered much of the returns.

And as we’ve covered before, an analysis by academic Henrik Bessembinder found only 4% of stocks delivered all the US stock market outperformance over one-month bills since 1926.

Or look at the US index today. Apple had grown to comprise more than 7% of the S&P 500 over the past 15 years. That’s a lot of index points that one behemoth has put on the board.

Run your winners, as they say.

Certainly that’s one takeaway. But another – more relevant for this discussion – is that statistically most stock ideas you read are more likely to come from Bessembinder’s mediocre 96% than the winning 4%, especially over the long-term.

The legendary stock picker Peter Lynch said: “If you’re great in this business you’re right six times out of ten. But the times you’re right, it overcomes your mistakes.”

Even clinical and emotionless quant funds are wrong all the time (albeit often with only small amounts of capital at risk with any particular trade).

Of course there are many ways to approach the market. Modern systematic or multi-asset fund managers staffed by should-be rocket scientists are playing a very different game to a traditional equity fund manager, with different risk and reward profiles.

Even so, an insider at the legendary hedge fund Renaissance Capital once revealed the firm started to find its edge when it was right about medium-term trades just 50.75% of the time.

On the back of that tiny win ratio was built the greatest wealth-compounding machine of all-time, with average annual returns well over 60%.

The bottom line: most stuff you read about will not beat the market, regardless of who wrote it. A minority of shares deliver the majority of returns. Even if you’re reading something written by a rare person with skill, there’s a high probability they’re talking about one of their duds. So most ideas you read about will probably lose to the market.

Common sense: what is realistic for the price of a pint?

Monevator Mogul membership is an extra few quid over the passively-orientated Mavens.

I will try hard to deliver a deep and interesting or educational article every month for members. And of course I hope to share some profitable ones. Though as I said, no promises.

But ask yourself…would I be giving away sure market-beating investment ideas for £5 a month?

Spoiler: no.

If I had such a golden goose, I wouldn’t even be working in the lucrative – and market-laggard infested – financial services industry.

I would borrow heavily and care for my goose on my own account.

Back in the real world, while I’m happy to put my interest-only mortgage where my mouth is, I do not believe I have an invincible formula or brain or strategy or time machine to inevitably beat the market.

Hence my aim with Moguls is to share ideas. To get you and me thinking better and more creatively about our investing. And to be there month in, month out, so that we learn together over time.

I’m looking for comrades, not customers.

A lot of the people who have signed-up to Moguls say they’ve done so simply to support our wider Monevator mission. We couldn’t be more grateful!

But I hope those who love the active investing game like I do will also enjoy the journey.

Incentives and career risk

“Show me the incentive and I’ll show you the outcome,” says Charlie Munger.

This statement is true almost everywhere in life, and clearly with investing.

Have you ever seen an advertisement for an active fund that mentions how most fail to beat the market? They don’t even talk about their rivals failing. Better not to bring the subject up.

That’s because the incentive for most money management shops is not to outperform. It’s to gather all the assets they possibly can. They will then take a percentage of the money they run, to some extent regardless of how well they do.

These people are not dumb. They are as aware as anyone of how hard it is to beat the market. So they naturally bury that difficulty deep in the messaging.

The Behavioural Investment blog just ran an interesting piece on the things that managers should say but don’t.

Some relevant ones include:

  • “We are managing too much money, it’s probably not in your best interests to invest with us.”
  • “Our recent strong performance is totally unsustainable.”
  • “I have to admit, we have been incredibly lucky”.
  • “Our new CEO is really focused on improving short-term performance.”
  • “The performance fee structure means that I can become very rich, even if I underperform.”

For a fund manager, keeping their lucrative job is the top priority. They will typically speak and act – and even think, rife as they are with cognitive dissonance – accordingly.

But I don’t get off the hook! What are my incentives with Moguls?

I’ll want to keep you subscribed, where possible. So I’ll want to keep you interested.

Even if I felt the same single stock had the best chance of beating the market every month, I’d be unlikely to only write about it again and again. I’d fear you’d get bored or feel short-changed.

What if I saw no good ideas, for months on end?

I hope I’ll say so. We’ll see.

Elsewhere, like everything else the wider investing media strives to get your attention.

What will Google searchers click on? What stocks are held by the most people, and so are of the greatest interest? What’s the point of discussing an obscure small cap if nobody clicks to read it?

Our membership articles will be behind a paywall. They won’t suffer from the clickbait curse. But it’d be overly-innocent not to imagine that other forces won’t shape our editorial instead.

Only you know what’s going on in your portfolio – and your life

Only you know how much money you have. How secure your job is. That you have two kids and a partner who is out of work. That you just paid off your mortgage – or you just took out a new one. You’re 35-years old. Or you’re 70-years old. You hate risk. Or you eat risk for breakfast. Your individual stock picks are made in a fun side-account with just 5% of your portfolio. Or you’re (very ill-advisedly) trying to catch-up on many years of not saving by striving to beat the market, fast.

Given all that, it should again be clear that any investment article is not speaking to you.

If you go to a professional and qualified financial adviser – ideally paid a flat fee, by the hour – and they talk through your aims, look at all your finances, understand your tax situation, and invoice you £3,000 at the end of it, then you’re entitled to believe you got personal financial advice.

If they didn’t then that’s not what you got.

Were I to say the consumer goods company Unilever – the maker of Dove soap and Ben & Jerry’s ice cream – is ‘low-risk’, then I’d mean that compared to other companies its future looks more predictable, its cashflows more stable, and perhaps it has a stronger balance sheet.

I could turn out to be right or wrong about that. But either way I would not be saying anything about the risks to somebody cashing in their private pension to put all their money into Unilever in their SIPP.

I’d not be saying anything at all about what any individual might do.

Does everyone understand what I’m saying here?

You say worth a punt, I say risk-adjusted portfolio diversifier

Everyone is different, and is in a different situation.

So if you read somebody on Twitter or ADVFN or Seeking Alpha saying they’ve put £10,000 into an particular share, know that without much more information it should give you zero extra confidence.

Perhaps they’re multi-millionaires? Maybe they have 100 individual investments of that size?

On the other hand, maybe they have a five-stock concentrated portfolio. But even this doesn’t tell you much, if you don’t know much more. How old they are. Whether they will inherit a fortune from their parents.

Whether they’re idiots.

Sure, you can get a better feel with exposure over time – it’s why I hope my long record of at least showing up on Monevator will make our membership more appealing – but you can never be sure.

It’s your money. It’s your life. You must make your own financial decisions every time.

Welcome to The Suck

Active investing began as an offshoot for me from passive investing. As I got ever more interested – those who know me might say obsessed – the index funds went, and the passion blazed.

Many of my favourite active investors have been great writers and sharers. I set up Monevator to write about my active investing, too.

Yet over the years it’s become painfully obvious that a majority of people should stick to tracker funds. Hence it’s felt counterproductive to talk much about active investing here, at the risk of diverting a typical reader from that path.

This is the prime reason why I added an active tier to our membership push.

Of course I want it to be an income stream too, but at least for the foreseeable future it’d be quicker and easier for me to do a couple of extra hours of my usual work a month instead.

No, I want a safe space to talk active investing. Without diverting the main message of our site.

Mogul material

Some of you nodded through all above. Those who did – and who are also a bit obsessed with investing – will hopefully enjoy Mogul membership for years to come.

Another of my aims with my articles will be to leave more people nodding than I found them.

But maybe it’s not for you? Absolutely no worries. Most people will do best to join our Mavens tier – to enjoy, learn from, and support The Accumulator’s passive investing mission.

Let’s all enjoy our investing, whichever path we take and with our eyes wide open.


Like all financial services, investing attracts its unfair share of bad actors and inept shysters. So it’s comforting to think that if the worst happens and your investments disappear in a puff of fraud, then the UK Financial Services Compensation Scheme (FSCS) will swing into action and bail you out.

But that ain’t necessarily so.

The FSCS protection scheme may come to your aid. But eligible claims have more strings attached than a puppet show. 

How can you know if your investments are actually covered by the FSCS? And what further steps can you take to maximise your protection level?

Fancy hearing about a route to 100% FSCS compensation coverage with no cap?

Read on!

The FSCS compensation limit

The first knot to unpick is that FSCS compensation is limited to £85,000 for investments. 

The formula is £85,000 per person, per firm.

Hence £85,000 is the maximum amount of compensation you can personally claim per firm you invest with. (Assuming all the other eligibility criteria are met. We’ll get to that funfest shortly).

  • The per person element means that you’re covered for up to £170,000 in a joint account. 
  • Per firm means that if, in some future dystopia, two or more of your investing platforms collapsed, then you could make a separate claim for up to £85,000 to cover assets lost in each implosion. 

For example, if you had £30,000 lodged with Ee-z-eeMoney Broker$ Ltd then you could put in a claim for the full amount owed. 

Meanwhile, you’ve also got £200,000 stashed with the Hard4Profits Company. Their directors were last seen boarding a flight to Panama so you can claim back £85,000 for that mess, too.

You’re not covered for the remaining £115,000. The FSCS compensation limit maxes out at £85,000 per firm, no matter the value of your accounts with that firm. 

The FSCS investor compensation scheme in action

Which firms are covered by FSCS compensation?

You’re only protected if the firm that pops its clogs is authorised by the UK’s Financial Conduct Authority (FCA) or Prudential Regulation Authority (PRA).

Note, the word you’re looking for is authorised by the FCA or PRA. 

The next step is to ensure that the authorised firm is actually regulated (by the FCA or PRA) to undertake the particular service you’re using them for. 

For example, is your broker regulated for ‘Arranging investments’ (translation: executing trades) in the particular security you wish to invest in? Such as ETFs or shares?

The FCA’s Financial Services Register theoretically enables you to check these details for every firm on their books.

But in reality it’s a minefield. A fact the FSCS acknowledges by shifting the responsibility for keeping tabs to you.

The FSCS says:

Ask your firm to confirm that the activity they are carrying out for you is a regulated activity and FSCS protected.

I thoroughly recommend you do that. Then double-check your broker’s claims are verified on the firm’s  Financial Services Register page. 

There was a time when I felt confident in checking a broker’s status purely through the Financial Services Register. 

However, a firm’s status on the register is nowadays defined by specific, technical terms. I cannot be certain my interpretation of those terms is correct. 

Plus the FSCS’s “Ask your firm to confirm…” edict is plastered everywhere on the site – which suggests we cannot solely rely on the register. 

Multiple brand names, one firm 

If you decide to diversify your money between brokers, then check they are not part of the same financial group.

For example, iWeb, Lloyds Bank Share Dealing, and Halifax / Bank Of Scotland Share Dealing are all in the same group. 

This means they all count as being part of the same firm, from an FSCS perspective. So you’d only be eligible for a maximum £85,000 payout, even if you diligently split your assets across them all. 

You can quite easily check whether your broker is part of a wider group on the Financial Services Register page. 

Just search for its name, then check the Trading names section of its particular entry for other aliases. 

FSCS protection for fund providers

FSCS protection does not cover you for investment risk. If your meme stocks go to zero then there’s no backstop. 

Rather, the £85,000 compensation limit is there to cover your investments from fraud, negligence, mismanagement, and mis-selling.

And those vices can affect the companies that manage your funds, too. (What a wonderful world!)

However the FSCS scheme only covers a narrow sliver of fund manager firm situations.

The headlines are: 

  • FSCS protection applies to UK domiciled OEICs and Unit Trusts.
  • It does not apply to funds domiciled overseas. For example, in Ireland. 
  • Nor will you be compensated if you hold ETFs or Investment Trusts with a fund provider that runs into trouble. 
  • The same goes for individual securities like shares or bonds. Never mind crypto. 

Use this tool to check your investment type’s FSCS protection status.

If you do invest in UK-domiciled funds then your maximum payout remains £85,000 per person, per firm.1

This is separate to the FSCS protection you’d be eligible for if a broker broke. 

However, there is a way to invest with 100% protection…

100% FSCS protection for insured personal pensions and annuities

Some personal pensions qualify for 100% FSCS protection. (That is, the maximum compensation level is not capped at £85,000.)

The FSCS describe eligible pension schemes like this:

The FSCS protects 100% of a pension directly managed under a life insurance contract.

Essentially that refers to some personal pensions and stakeholder pensions that are offered by large insurance firms. 

The firms must be regulated by the PRA. And the particular scheme must be classed as a contract of long-term insurance to qualify for FSCS protection.

100% FSCS protection seems to be woefully advertised, given that many people would value it highly. 

Rather than plastering it all over their brochures, I’ve found pension providers typically relegate any references to a couple of paragraphs that are sometimes found in their Key Features documents. 

Here’s the kind of thing to look out for, courtesy of a Standard Life Stakeholder Pension document (bolding is mine):

Your plan is classed as a long term contract of insurance. You will be eligible for compensation under the FSCS if Standard Life Assurance Limited becomes unable to meet its claims and the cover is 100% of the value of your claim.

Watch out for clauses that warn you lose FSCS compensation if you invest in certain funds available through the pension. These funds are usually managed by another investment firm but, bizarrely, they may also include own-brand funds provided by the firm that is actually running your pension.

Talk to your pension plan provider if you’d like to know more and maintaining 100% FSCS protection is important to you. 

Bear in mind that – along with annuities – these types of pension qualify for compensation under the FSCS insurance claim category. 

In other words, pension assets like this don’t interfere with your £85,000 investment category claim should you hold a brokerage account, or other funds, with the same firm. 

FSCS protection for Master Trust pension schemes

If a Master Trust workplace pension scheme runs into problems then its trustees can invoke FSCS protection on behalf of its stakeholders. You wouldn’t claim yourself. 

However, here again, beware of warnings in the documentation about choosing certain funds that aren’t eligible for FSCS compensation. 

Defined benefit pensions

Defined benefit pensions should be covered by The Pension Protection Fund (PPF) rules. Double check that yours is.  

The top-line is:

  • 100% compensation if you’ve reached the scheme’s pension age.
  • 90% compensation if you’re below the scheme’s pension age.

Public sector pensions are funded by the taxpayer, so you’re fine as long as we have a functioning government (place your bets) and the Bank of England money printer doesn’t run out of ink. 

What about cash in an investment account?

Your £85,000 FSCS investment compensation limit doesn’t reduce the £85,000 you can claim for lost cash deposits.

Most brokers lodge client money with one or more big-name banks.

If a bank fails while holding your cash on behalf of your broker, then you can claim £85,000 back, while still claiming £85,000 elsewhere for missing investments.

However, if your broker money was stashed with a single institution – say Lloyds – and you also had a personal account with those self-same black horsie people, then you could only claim up to £85,000 for the two losses combined.

That’s because the limits apply per person, per firm, per claim category. (Cash is one category and investments another).

Some brokers park your money with multiple banks. They say that means your cash is equally divided between them all. 

So, if your broker uses four banks for client cash, then you wouldn’t have to worry about exceeding the compensation limit until there was more than £340,000 sitting in your account.

(If you’re – cough – an absolute baller with more than £340,000 in cash at your brokers, then I hope you’ve already ponied up for Monevator membership…)

How likely are you to need FSCS protection? 

Of course, the worse shouldn’t come to worst.

There are regulations in place that require fund managers and brokers to segregate your assets from their own.

If the mother company explodes, your money should be safely ring-fenced in a separate pot. You’ll get it back once the smoke has cleared. The company’s creditors have no legal right to your piece of the pie.

That’s what is meant to happen. But any system can fail. You will find a warning to that effect in the terms and conditions of any reputable UK broker. 

As Cofunds puts it:

As with any FCA regulated investment firm in the UK, while it is highly unlikely that Cofunds were to become insolvent, or cease trading and have insufficient assets to meet claims, we can’t provide a 100% guarantee that your money is fully protected.

So FSCS compensation provides a last resort backstop – just in case the next Bernie Madoff happens to be running your brokerage, while the cast of Dad’s Army is in charge of administration and oversight.

If your investment platform went pop, shouldn’t the bulk of your assets actually be held elsewhere, though? Shouldn’t your money be invested in ETFs and funds with other companies that are still in perfectly good nick? 

Yes, that’s true. Indeed, most claims that require FSCS intervention seem to involve mis-selling, where consumers took advice from a so-called investment professional.

However, the FSCS did step in to assist customers of Beaufort Securities and SVS Securities – two UK brokers that collapsed in 2018 and 2019 respectively. 

In both cases, the FSCS made good customers who would otherwise have taken a haircut because client assets were earmarked to pay the fees of the insolvency administrator. 

It turns out that administrators are not creditors. So they can dip into the pool of supposedly segregated customer assets, at the discretion of the FCA, if there’s no other way to meet the bill. 

Passively paranoid

During the wind-up of Beaufort Securities, the FCA used the FSCS scheme to ensure that most but not all customers avoided a hit.

In this case, people didn’t lose everything. But clients with a very large account balance took a haircut that exceeded the FSCS compensation limit. Whereas most customers took a percentage loss on a relatively small total account balance, meaning their share of the shortfall was inside the FSCS cap.  

So you may decide that you don’t need to fret when your account balance reaches £85,000. That you’ll only need the FSCS to cover you for a percentage of whatever amount you’re owed. 

On the other hand, my biggest fear is the (admittedly small) chance of being caught up in a massive financial fraud. 

It’s not hard to picture a scenario in which a firm tells you, “Don’t worry your cash is safely tucked away in Vanguard funds,” when it’s actually been spent on a fleet of supercars and crypto bets.

  • For a full picture of why your brokerage account may not be as ironclad as you’d like, please read this piece on the weaknesses of industry-default nominee accounts

What should you do?

We’ve had many discussions in the Monevator comment threads about how far to go for peace-of-mind. 

Most people accept that their chance of needing FSCS compensation is acceptably low. Hence few of us open a new brokerage account for every £85,000 worth of investment assets we own. 

But anyone with a large holding would be well-advised to diversify. 

I personally operate across two different, reputable brokers. The Investor uses at least four that I know of.

Even if it all ends happily ever after, broker insolvencies can take many months to clean up. During that time your funds will be inaccessible. 

If liquidity is important to you, then you’d be wise to spread your assets across multiple platforms, regardless of the FSCS. 

Managing broker risk 

No guarantees but here’s some tips if peace of mind is extremely important to you. Choose at least one broker that is:

  • Big not small 
  • Listed rather than private (greater scrutiny)
  • Profitable (check their annual report)
  • High credit rating rather than low or no rating
  • Doesn’t offer margin, loan out stocks, or run their own trading desk

Brokers can buy ‘Excess of FSCS cover’. This is an insurance scheme that apparently “protects investors for deposits above the level that the FSCS will reimburse.”

I haven’t seen any online broker advertise it as a USP, but it’d certainly offer some comfort if you find a platform that does.

Getting the answers you want about FSCS protection

As discussed, the FSCS expects you to contact your broker for reassurance that they are properly protected by the compensation scheme. 

However, investment platform support staff are often inadequately trained in this area. 

You may get a vague, confusing, or inaccurate reply. Ask two different people at the firm and their responses can be worryingly inconsistent. 

Moreover, while some brokers clearly explain their level of FSCS protection on their website, others do not. Even when their coverage is perfectly fine!

So you might have to persevere. 

A line like this may do the trick:

“Is my investment account covered by FSCS protection up to £85,000 if your firm becomes insolvent?”

Then make sure they specifically answer that question without fobbing you off with talk about cash protection, client money, or segregated assets. 

The answer you need is that your investment holdings are covered by the FSCS. 

Take it steady,

The Accumulator

  1. Think BlackRock, Vanguard, or L&G, for example. []
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What caught my eye this week.

The ‘proper’ savings rate for a pursuer of financial freedom is one of those perennial hand grenades lobbed into the otherwise cozy and supportive world of personal finance blogging.

Partly that’s because of fundamental differences in philosophy when it comes to how many fingers to raise – and how vigorously – when faced with the endless temptations of consumer culture.

But mostly it’s because we all have different values and financial situations. We’re at different stages in our journeys, too.

Hence we see the spectacle of comfortably retired Boomers berating 20-somethings for ordering a bit of avocado on toast, while other 20-somethings shame their own for getting a latte from Starbucks (shameful, true, but not for financial reasons) – and everything in-between.

When I bought my flat, I also bought a fancy coffee machine. I’d wanted one for at least a decade and for me it was part of the home ownership dream.

But to some readers it was akin to Bob Dylan going electric at the Newport Folk Festival.

Never mind that I could easily afford it – and I’d waited until I could, too – or that my savings rate had been 20-50% for 20 years. That I’ve never bought a car, let alone several cars, in my life. Or that a good coffee is one of my top ten hedonistic pleasures.

They didn’t like it – and yet other readers slapped me on the back.

Enjoy yourself, they smiled. Ignore the haters!

Comparison shopping

Funnily enough I didn’t feel massively more kinship with the latter than the former.

That’s because we all had – and have – a lot more in common with each other than could be divided by a homemade espresso.

While others read the footie results or catch up on Love Island, here we find ourselves on a pretty niche money and investing blog. We’re all looking to put or keep our finances on a decent footing. And making our own decisions daily about what to splurge on and what to eschew.

The only contention is that one person’s luxury treat is another person’s wasteful squandering. That his cost-saving gambit is her unthinkable sacrifice.

A luxury you just can’t forfeit might not even register for me.

You drive a BMW Coupe 343 B-Liner Sedan Thingywotsit? Really?!

At least I think that’s what you said. Knock yourself out.

I don’t do cars. Maybe you don’t do espresso machines. It’s silly arguing over the specifics.

The big picture – money in, money out, investing the rest – is what matters.

Better latte than never

It’s a similar story with savings rates.

If you’ve no money socked away at 50 and you tell me you’re going to start saving 5% of your salary into a SIPP, then I’m going to tell you it’s not enough.

Until, that is, you tell me you’re earning £500,000 a year…

At the same time a 22-year old saving 5% of their fairly ordinary professional salary – topped up by the company and the government – might well be on their way to becoming a millionaire by the usual retirement age without ever feeling they sacrificed anything.

Which in turn leads to those circular arguments about whether compound interest matters or not.

If you only start saving properly when you’re a decade away from retiring, I agree it’s not going to do much for you.

If you began in your early 20s and now you’re in your 50s – seeing a good year in the stock market bolt more than your annual salary onto your portfolio – well, it’s hard to know where to begin.

It all adds up

Nick Maggiulli over at Of Dollars and Data therefore did everyone a great favour this week by pinning some numbers onto this age-old drama.

By showing how the impact of saving a bit extra varies depending on how much you’re already saving – and for how long you intend to keep at it – Nick has revealed the mathematics behind the emotions in these debates.

For example, let’s say you are currently on-track to retire in 30 years. Nick’s table below shows how many years of work you could avoid if you increase your savings rate by three different amounts:

So if you’re already saving 20% of your salary, for instance, then save 5% more for the rest of your working years and you could actually retire three years and a bit earlier.

What’s striking about this table is actually how little difference saving even more money makes once you’re already putting away a healthy 20% or more of your income. That’s the long time horizon at work.

Have all the avocados and lattes you like, my young and disciplined friends!

In contrast, if you’re only currently saving 5% to be on-target to retire in 30 years, then tripling your saving rate could nearly halve your remaining years in the office.

There’s plenty more insights unearthed by Nick’s tables and graphs, so go read it.

And have a great weekend!

p.s. Thank you to everyone who has already signed up to become a Monevator member. It’s truly gratifying and the strong start has encouraged us to think we can eventually become a sustainable operation. What’s more, many of you shared some generous words, too. If you haven’t already read the more than 130 comments from readers on last Saturday’s post, please do! And thanks again.

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