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Weekend reading: Don’t do it yourself, say companies who will lose out if you do

Weekend reading

Good reads from around the Web.

I think successful DIY investing is within the grasp of at least 50% of the population, so long as they stick to the basic rules.

Provided you steadily put money into a simple and diversified portfolio over several decades, think about your risk tolerance, rebalance accordingly, and tweak as you age, you should do pretty well.

But I don’t think that’s true if you start to try to time markets, pick shares, or try to chase winning fund managers. Sometimes that will work for some people. But the evidence is it mostly won’t.

And if you do so stray from the right path, then managing your own investing could become a liability, and a risk to your wealth.

Rocking the status quo

Of course, for decades the alternative to DIY investing was at least as bad – the guaranteed impact of seeing huge swathes of your money go into the hands of fund managers or financial advisers.

Worse, that industry was built on getting you off the right path.

The financial services industry wants you to churn your assets for commission. It wants you to pay up for access to supposedly superior expertise. It wants its products to be opaque so you don’t understand them, and don’t believe you can replicate them more cheaply for yourself.

The Retail Distribution Review (RDR) has done away with some of that. Now fees are more transparent, and they’re becoming lower. Passive investors might begrudge annoyances like the introduction of platform charges, but overall it’s been a win for private investors.

But some are less happy. Because giving advice is now much less lucrative, plenty of financial advisers have given up on financial advising. And because index funds are growing in popularity in this cost-aware and self-educated world, fund managers also sense the game might be up.

Remember, the financial services sector has exploded over the past 50 years to capture a huge share of the slice of wealth generation that used to go into investors’ own pockets. If the gains are reversed, it will not be pretty for the incumbents.

The counter-revolution

We’ve already had the ‘index funds are parasites’ argument emerge even as the evidence that most active funds are inferior has become overwhelming, and more widely understood.

Now there’s a new line of attack: DIY investing is dangerous.

In today’s FT [Search Result – click the link at the top]:

Hugh Mullen, managing director, UK at Fidelity Worldwide Investment, says: “Most people would not dream of repairing their own car or fixing their own plumbing, yet more people are deciding against financial advice to save on fees.”

Fidelity, in conjunction with the Cass Business School, published a report earlier this year that warned millions of people could fall into what they called the “guidance gap” because of RDR. These are people who are left without professional financial help in the post-RDR world, yet need it badly – because they have experience of, or interest in, managing their own financial affairs.

Mr Berens [head of UK funds at JPMorgan Asset Management] says: “A financial adviser can take you down many more avenues. The biggest pitfall for many investors is getting the asset allocation right for the period of their life. A young person can afford to have a majority of their portfolio in equities and take the risk of losses as they have more time to recoup them before they retire or decide to cash them in. An older person nearing retirement should have safer bonds, cutting down on risks as they do not have the luxury of time should the market turn against them.”

Perhaps I’ve got delusions of grandeur, but when I read this sort of thing I wonder if the active management industry might put a price on my head.

There isn’t really much to know to get the basics of DIY investing right – especially if you don’t need to know why it works.

Ironically, Mr Berens sums up part of it in the few sentences above.

But the financial services industry wants you to believe that it’s beyond you to know these few salient essentials, and to act appropriately.

In my opinion, the FT article carries several unsupportable claims in defense of the status quo.

In short: The revolution continues, comrades!

p.s. Thanks again to everyone who contacted me after my rant last week. I was amazed at the volume, and due to your emails I felt slightly less sheepish the morning after the night before. We will keep trying to live up to your high expectations. Comments remain open for now, but please don’t comment any further on that debate here – pro or against – as I think it’s best we move on. With regret, I’ll therefore delete any comments that do.

From the blogs

Making good use of the things that we find…

Passive investing

Active investing

Other articles

Product of the week: According to a report in The Guardian today, Scottish Power’s ‘Online Fixed Price Energy December 2014′ deal is the best way to lock down your bills in the short-term. The newspaper says you can get £60 cashback via its switching service, too.

Mainstream media money

Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1

Passive investing

Active investing

Other stuff worth reading

  • Sound the retweet: Irrational investors – The Economist
  • Food gadgets that could save you money – Guardian
  • Help to Buy: Most cash-poor earners still priced out – Telegraph
  • Should we tax the rich more? [Graphs, data]Telegraph
  • The making of The Wolf of Wall StreetWSJ
  • Music scenes are like stock market bubbles – The Atlantic

Book of the week: I’m still working my way through Investing Demystified. Like Tim Hale’s Smarter Investing, it’s a big and sometimes slightly complex book about simple investing, mainly because it wants you to understand why it’s the best way for you to invest. I have my doubts that these books can reach as many people as they aspire to for that very reason. But I also can’t talk, given how the same thing has happened to this blog!

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  1. Reader Ken notes that: “FT articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.” []

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{ 30 comments… add one }
  • 1 Matt October 12, 2013, 11:23 am

    “Most people would not dream of repairing their own car or fixing their own plumbing, yet more people are deciding against financial advice to save on fees.”

    Strangely enough, not only do I make my own financial decisions, I also repair my own car and fix my own plumbing. The internet will tell you how to do all of these things!

  • 2 Retirement Investing Today October 12, 2013, 11:52 am

    I couldn’t agree more. I went DIY in 2007 and haven’t looked back. Sure I’ve made some mistakes but the difference is instead of an Advisor or Fund Manager mistake going unnoticed I’m able to learn from them. This prevents me from making the mistake again.

    You say 50% of people could go DIY for their long term investing. Let me be a little controversial here and question whether it could actually be 100%. Here’s the portfolio:
    – 100% placed into a Vanguard LifeStrategy™ 60% Equity Fund
    – Wrapped in a low cost online S&S ISA. That selection takes 5 minutes. Just look at your Compare Brokers tab.
    – Go fishing

    Of course it won’t happen as if you take responsibility for your own actions then you can’t act like a victim and are forced to take a long hard look at yourself if it goes wrong. That’s something the vast majority of the population can’t cope with. It’s far easier to blame somebody else when your expectations aren’t realised.

    I’m sure there will be plenty of people along to suggest I’m not taking into account people’s risk tolerance, derisking as you age etc. That might be the case but how far wrong can it go when:
    – It prevents churn from market timing, share picking and chasing winning fund managers.
    – It is “low” expense as opposed to paying for all that expertise (and that expertise want yachts not dinghy’s) which really does drag on portfolio performance over the long term.
    – It is tax efficient.
    – It rebalances automatically.

    The punter can then concentrate on saving hard (earning more and/or spending less) which can be placed into the portfolio thereby accelerating the wealth building.

  • 3 Neverland October 12, 2013, 2:34 pm

    The FT is the only newspaper I pay to read, even though it’s politics are to the right of mine

    Nevertheless many of the articles, especially in the personal finance weekend section, are not much more than corporate press releases spoonfed to compliant journalists

    This is one of them

  • 4 ermine October 12, 2013, 2:46 pm

    I want to know what’s wrong with fixing your own plumbing too. It is reasonably simple, the principles are visible upon inspection, and faults make themselves pretty obvious 😉

    so long as they stick to the basic rules.

    Ain’t that the rub, though – they have to keep doing something (and not doing other things) for decades on end, on faith, despite it occasionally looking like it’s all going horribly wrong.

    I think asking for constancy like that over decades is a hellaciously big ask in a world set up increasingly for instant gratification. I take your point, but many of those DIY investors are going to get slaughtered. Okay, slaughtered a little bit less expensively than before, but constancy in the face of temporary adversity is looking for character, not smarts…

  • 5 SG October 12, 2013, 3:40 pm

    I went DIY twenty-five years ago and never regretted it and I got rid of my last vestige of involvement with active funds about three years ago, having never had good returns from it.

    I’ve made some mistakes, for sure, but overall, I think I have done much better than leaving it to the professionals, not because of better investment, but because of not paying their salaries and bonuses.

    The basics of investing for most people are quite simple, as your blog maintains. In fact, your blog mostly and quite rightly just repeats the basic message over and over again, albeit in endlessly diverting ways, with a few extras thrown in from time to time. Keep up the good work!

  • 6 BeatTheSeasons October 12, 2013, 4:18 pm

    Very true, but how do you make sure the right 50% try to go it alone – introduce some kind of Monevation Test before they’re allowed to go DIY?!

    I have one family member who ‘invests’ all of his money into premium bonds, giving him a 99%+ certainty that the whole lot will eventually be worth almost nothing.

    I’ve also spoken to private ‘investors’ who had risked everything by buying shares in a listed company which eventually went out of business. One had lost his entire navy pension fund and was left with nothing for retirement.

    Both cases would probably have been better off with even the worst financial advisor charging the highest fees.

  • 7 Nathan October 13, 2013, 9:56 am

    I was a late and reluctant entrant to the DIY thing. It was only picking through the smoking wreckage of my managed portfolio in 2008/9 made me realise I was paying 2.5 to 3% in management fees (plus 5% ‘startup fees’) for some beast that just mirrored the ftse.

    There’s nothing like feeling like a mark to spur your resolve to grapple with the tedious complexity that is investing.

    However a big thank you to Monevator for relentlessly pushing the basics such that even I managed to figure out what I was doing by 2010.

    I don’t think I’ve come across any other UK resource for the up to date bridge between book based theory and making a plan of “I will buy this thing, on this date, at this place”.

    Now if the brokers would just wake up and align their platforms with a nascent DIY’er’s needs, imagine how simple the implementation of something like RIT suggests above could appear.

  • 8 Jon October 13, 2013, 10:24 am

    @nathan,
    Hear Hear. I was also a late entrant to DIY investing and the Monevator website was my first resource.

    Bear in mind that the tools for DIY investing (low cost execution brokers, access to company information, ETFs, Index funds, internet etc etc) simply were not available 10 -15 years ago. Number of ETFs have only grown substantially in the last few years.

    You would think that the Next 10 years does not bode well for the Active Fund Managent industry, however no one in my circle of friends, family & work colleagues have any interest in DIY investing, they don’t even know which funds there pension is invested in.

  • 9 diy investor (uk) October 13, 2013, 11:10 am

    In his new book ‘The DIY Investor’ Andy Bell (CEO of Sippdeal) recons the number of diy investors will grow from 2 million to 7 million over the next few years – so possibly around 15% of the population.

    Whether it could ever get anywhere near 50% is, I believe unlikely. Learning how to do it is one thing but having the inner belief and confidence to take control as well as the discipline and patience to see it through year after year is quite another.

    Obviously I am all in favour of people taking control of their finances and investments, but getting from 2m to 25m is an awfully big leap!

    (ps defense is the US spelling?)

  • 10 Monk October 13, 2013, 12:47 pm

    I love Monevator!

    The site that is, rather than the person, although who’s to say I wouldn’t fall head over heels if I saw him/her across a crowded room…

    But,

    Who will they sue for compo when the mass of the 50% choices turn out to be duff?

    And,

    If the pool of active investors is diminished, what impact will that have on a passive investors return?

    My suspicion is that for the majority, the difference between active and passive will diminish, leaving us passively crying into our EOY statements in true unsocialist fashion even though society is probably better off overall.

  • 11 L October 13, 2013, 2:35 pm

    An off topic question. Did you readers (and TI) buy into the royal mail IPO?

  • 12 dearieme October 13, 2013, 4:52 pm

    alephblog: ‘every risk mitigation scheme has to pass the test: “what would happen if everyone did this?”’

    No it bloody doesn’t. It only has to work well enough for long enough that I adopt it, and we do well out of it; when it stops working another one will come along.

    ‘This is an idea that cannot scale. Yes, owning small companies and the debts of small companies have yielded high returns, but if many people do that, it will cease to be true.’ Really, what a silly ass. Just sell out to the latecomers and press on to the next thing.

  • 13 dearieme October 13, 2013, 5:02 pm

    Money moustache is being a silly boy:

    ‘Live a long and healthy life.’ He goes on to recommend cycling. I agree. I thoroughly enjoy cycling. I cycled to work for decades. Etc, etc. But he also says:

    ‘Have plenty of close and happy relationships with fellow humans.’ But cycling made me want to strangle large numbers of fellow humans, particularly fellow cyclists. What incompetent, selfish, self-congratulatory prats so many of them are!

    In other words, Mr MM has not addressed the Great Question of Life – what is one to do when different goals are incompatible?

    P.S. Yes we applied for Royal Mail shares and got £750’s worth each. We decided to hold half, sell half, but Messrs Hargreaves Lansdowne declined to co-operate..

  • 14 Rob October 13, 2013, 5:09 pm

    The Platforum reckons there are about 14m people in the UK with risk based assets. It estimates about 7m blend professional advice with their own research, 2m rely purely on advice and about 4m are totally DIY.

    That is a big DIY Market that needs servicing.

  • 15 dearieme October 13, 2013, 6:06 pm

    “the tools for DIY investing (low cost execution brokers, access to company information, ETFs, Index funds, internet etc etc) simply were not available 10 -15 years ago.” I beg to differ, Jon. True, those tools weren’t available, but others were. When I started in the late 80s, you could bung your cash into the blessed ILSCs, and soon after into a Tessa. You could hold shares in a PEP: Alliance Trust Savings offered excellent value, and their old on-paper system was far better than you’d ever guess if all you knew of them was their current on-screen system. I could switch between units free in my unit-linked Retirement Annuity Policy at Equitable Life (thank God it wasn’t in With Profits), the success of which was probably what gave me the confidence to carry on without ever having consulted any sort of advisor.

    Should I count one visit by a salesman from EL? He recommended mildly his RAP, recommended strongly a Term Life Insurance Policy and, bless him, recommended strongly against a second insurance policy as being simply unsuited to us. If you call that advice, that’s all I ever had: it was, though, very sound.

    A well-timed move out of equities into bonds in 1999 cemented my conviction that I’d be better off DIYing: which advisor would have recommended that? My experience is that my asset purchases and sales have worked well; where I have fallen down is in omitting to make share purchases that would have paid off well. Of my two big blunders-by-omission, one was pardonable. The second was a simple failure of imagination on my part: I hadn’t twigged that politicians would intrude repeatedly to lever up the stock markets. Silly me.

    Anyway, I expect I’ll try to avoid such errors in future by adopting a pretty much mechanical rebalancing policy. The only role I can see now for an advisor is for technical stuff about Inheritance Tax, and if they try to charge too much I’ll leave the problem to the next generation. I have no intention of paying charges that might add up to more than the 40% we’d be trying to avoid.

    The really big change since the late 80s is the number of people who really ought to take an interest because they will not have a Final Salary Pension.

  • 16 oldthinker October 13, 2013, 11:11 pm

    @dearieme

    > A well-timed move out of equities into bonds in 1999 cemented my conviction that I’d be better off DIYing: which advisor would have recommended that?

    This is survivorship bias: you got lucky. You cannot count on such luck continuing (though it is only natural to hope that it will). I am all for DYI investing, but the argument of yours quoted above is not sound.

  • 17 Grumpy Old Paul October 14, 2013, 8:33 am

    “the tools for DIY investing (low cost execution brokers, access to company information, ETFs, Index funds, internet etc etc) simply were not available 10 -15 years ago.”

    A factual statement which is irrefutable. There was indeed a period when that well-qualified climatologist Nigel Lawson offered ILSC’s returning RPI + 4%; I think it was around the same time that he telegraphed the ending of multiple MIRAS relief on a single residential property.

    I can think of certain people to whom the description of cyclists within post 13 fits very well…

  • 18 Mark Meldon October 14, 2013, 11:18 am

    Here is an IFA sticking his head above the parapet! Actually, I think 70%+ of people can be DIY investors and I’m all for that, oddly enough. In my 25 years experience (and, yes, I was a very early adopter of index funds way back in the early 1990s) though there are several reasons as to why that might never prove to be the case, IMHO.

    My small rural practice mainly deals with higher-rate taxpayers, educated to degree level, although I am always pleased to get involved with helping others, too, often without a fee (and, no, the richer clients don’t subsidise the poorer ones). These clients – all nice people – do all sorts of different things to make a living or are already retired. It stikes me, then, as amazing, as to how may of these clients don’t understand a) compound interest b) inflation c) the impact of costs, and those are merely three straightforward examples.

    Nowadays, sites like Monevator provide an valuable resource for all, and I direct clients, new and old, to take a look; some do, some don’t. But the level of financial illitereacy in the UK is, frankly, astonishing.

    Maybe that’s why there have been so many repeated scandals involving IFAs such as dodgy, opaque, structured products, iffy pension transfers, zero dividend preference shares, African hotel investments, Arch Cru, etc., etc. Whilst I have never been involved in such “sales”, the good guys pick up the tab with the FSCS, but, never mind.

    Many of my clients operate what I call a “proper” SIPP, administered by an independent actuarial firm. They charge £ & p, not percentages, making the admin cost of the SIPP very attractive for larger investments. Seemingly, nearly everyone else sticks to the dreaded % take, and we all know the problems that can create. The SIPP is truly “open” and most clients have portfolios of ETFs and investment trust shares in the pot. The running cost, all-in, is around 0.50-0.70% a year, which I think is pretty good.

    This is decidely not an advertisement, but a feeble attempt to say that there are now quite a few decent IFAs out there who don’t rip off their clients and offer a good service.

    I have many clients who manage their own investments, some well, some not, and they use my services for “other stuff” such as administration, trusts, life insurance (yes, really!), a sounding board, etc. Most, however, say something along the lines of “hold my hand at first, tell me what to do and how do do it, keep an eye on things, and I’ll have a go myself later, too”. And, quite often, they become “engaged”, particularly with their pension funding, and actually take on the responsibility that we all know we all neeed to take on.

    A final thought. I recently asked a client, a very bright economist, why he asked for my advice rather than go down the DIY route. His response was along the lines of a) I’m too busy b) I can’t forsee the future any more than you c) And, importantly, I can blame you if it all goes wrong and go the FOS/FSCS! – at least he was being honest.

    IFAs also have to carry (very expensive) professional indemnity insurance, too.

    As I said, just some off the cuff remarks, and, although I’m sure that I will get shot down in flames for making them (we shall see), I do think that there are many reasons, still, as to why decent IFAs will be around, particularly those who get paid on a time-related basis like me rather than in percentages, in one form or another, for some time yet.

    Monevator, keep up the brilliant educational efforts and I really appreciated your common-sense reasons for taking down the comment facility a few days ago – well done!

  • 19 dearieme October 14, 2013, 12:34 pm

    “you got lucky. ” I disagree. Expecting to be right every time on market timing would be mad, but spotting the very big looming calamities and acting on that is not mere luck. I’ve spotted two: in ’99 I decided that ‘this madness can’t carry on indefinitely’ and out I came. Practically all investment managers would not have done that EVEN WHEN they agreed with my analysis. They would have run with their own herd to protect their jobs even if they strongly suspected that they were thereby letting down their clients. The most daring might have gone underweight in equities by a few percent. Pah! That’s one very strong advantage of DIY: you don’t have to cover your arse to keep your job. The second “good spot” was to realise that the great debt bubble was becoming unsustainable in the mid noughts. Here there might have been an advantage of principle in having an investment advisor, since he would presumably have technical knowledge of how best to exploit this realisation. But again, the great bulk of money managers would have agreed with that American megachump: “if the music is still playing you gotta keep dancing”. Leaving your moolah in the hands of such people would be madness.

    One of the attractions to me of a scheme such as Harry Browne’s is that it would have had the effect of making me sell a substantial part of my equities in ’99 even without my realising what was going on. It would also have had the advantage of having me buy gold long before I realised the case for holding some Precious Metals. Whereas most “professionals” would, I suspect, have had me heavily in equities up hill and down dale. That’s no bloody good. The other great advantage of a mechanical scheme would be that it would probably have got me buying equities at the two moments when I should have done but didn’t.

    Suppose I split our money into two heaps. The big one would be passively managed in the style of Harry Browne or one of his competitors, the little one would be actively managed according to my understanding of what’s going on, but still paying attention to costs and taxes. I’d be ashamed of myself if I couldn’t beat the great majority of “professionals”. If you combine their extortionate costs with their career-protecting pusillanimity, you get a recipe for poor performance.

  • 20 dearieme October 14, 2013, 12:45 pm

    “if I couldn’t beat the great majority”: I should have said that I wouldn’t measure “beat” just by the return, but by some combination of return and management of “risk”, where I would view the latter as partly a matter of restraining volatility (especially downward volatility), and partly a matter of insuring against the ‘unknown unknowns’. For all I know, I could match the average professional on return, while getting lots of improved risk management free. I’ll never know for certain because the latter is not, as far as I know, readily amenable to useful quantification. No matter: I would rather manage the right thing roughly than the wrong thing precisely.

  • 21 BeatTheSeasons October 14, 2013, 12:53 pm

    If you’re going to rely on an IFA for asset allocation you have to recognise that they probably aren’t going to advise you to buy classes of asset that they don’t get commission on (unless they are only charging by the hour like Mark above).

    Hargreaves Lansdown regularly carry articles about how residential property is a risky investment, yet the returns (in the SE, with leverage) would have outstripped every other class since 1997. A coincidence that you can’t buy it in one of their ISAs or SIPPs?

    On the other hand they’ve produced a whole free guide about buying residential property abroad. Hey, you could even use their foreign currency service to transfer the money over!

  • 22 Mark Meldon October 14, 2013, 1:12 pm

    To be clear, you can’t hold residential property in a SIPP and, as far as I know, the same applies to an ISA, too. I’m old enough to remember the Henderson Prime Residential Fund debacle and, IMHO, most of us have quite enough exposure to property as an asset as we live in a home, whether owned or mortgaged! Bit different for renters, of course, and, due to liquidity concerns, I have always been wary of commercial property investments, direct or via collectives, as a “decent” asset class.

    Commercial property in a pension (SIPP or SSAS) can be very useful for certain clients, certainly as operating premises.

    Oddly enough, I was offered a job by Messers H & L in the early 1990s but it didn’t happen (it’s a long story). I noticed the other day that the person who now fulfills that prospective role earns around £700,000 a year, about 14 times my income! Where does all that cash come from, I wonder?

    Don’t get me wrong, HL is a very fine business and good luck to them, honest.

    Nor am I bitter as I ‘d rather work to live and my children recognise me when I get home – and, after all, it’s my clients money, whether dressed up in commission until last year or paid in fees, not mine.

  • 23 Lazy Invstor October 14, 2013, 2:59 pm

    I’m happy to say that I’m almost entirely active-funds free now after starting ‘off the right track’. Cheers!

  • 24 WestCountryEscapee October 14, 2013, 5:38 pm

    I’m glad I went DIY in my SIPP from the outset even if I have made a few mistakes along the way and ended up with a permanent-type balanced portfolio mostly based on index funds.

    Anyone could do a lot worse than invest regularly into an ISA or SIPP with a low cost FTSE tracker or Vanguard LifeStrategy fund and will probably end up better off than most other options out there, especially over a long term.

    I’m perpetually amazed at how people think active investing can beat passive investing, never mind whether it does or not. What I want to know from an investment is very simple: if I had bought this regularly over the last x years, would it have done better than just buying a FTSE tracker, including dividends and all costs?

    My own SIPP fails this test although I’ve only been rebalancing properly over the last few years, so I hope it to improve. If it doesn’t though, I know what to do! Warren Buffet put it more succinctly – and his money where his mouth is here:
    http://longbets.org/362/

  • 25 Windy Miller October 14, 2013, 9:25 pm

    I’m puzzling a bit over my current situation and would welcome any thoughts. I earn a bit over £60k. I have 3 kids. The new child benefit rules result in me having an effective tax rate of 67% on income between £50k and £60k. Faced with that 67% rate, it’s now not worth me earning more than £50k.

    So, what to do? It’s perfectly within the rules for me to increase pension contributions to reduce my taxable income to £50k (although frustrating to be forced into the pension route as I prefer ISAs). I have a company pension – they match me to 6%. They also top up any extra contributions by 10% of whatever I pay in. That’s with Standard Life where I have a mind-boggling choice of many hundreds of funds. I have picked cheapish funds but there is nothing that really fits in with the low cost Monevator approach. My small but slowly growing ISA investments are of the low cost passive approach.

    Clearly paying the 6% pension contribution makes sense as the employer matches it. But what about any extra? Am I better paying into the company scheme and taking the extra 10% – or should I get a SIPP started with a low cost approach, maybe transfer a couple of small old pensions into it to give it a kick-start. It’s that extra 10% that baffles me – is it worth having or not?

  • 26 WestCountryEscapee October 15, 2013, 9:42 am

    Windy – an additional 10% on the way in can cover a lot of fees! I would choose something from the Standard Life offerings that fits in with both the existing Standard Life investments and those in your ISA, treating it as one big portfolio.

    The Motley Fool website may be helpful here – I’m thinking of Luniversal’s ‘basket of seven’ funds or something similar if these are available.

  • 27 dearieme October 15, 2013, 3:01 pm

    Windy – take the 10%. When you change employer you can move your capital to a different scheme with cheaper offerings, but the 10% will remain yours until death do you part.

  • 28 David Craig October 16, 2013, 2:48 am

    I was just wondering if you knew about my recent book “PILLAGED How they’re looting £413m a day from your savings and pensions…and what to do about it”

    In it I expose the many ways the financial services takes our money – £1m a minute, over £400m every working day, £105gn a year – and show how people can keep more of their money for themselves.

  • 29 The Investor October 16, 2013, 9:06 am

    I think it’s easy to read a site like Monevator and the comments and so forth, and get an overly-optimistic view of the average literacy (financial and otherwise) of the average Brit.

    The reading level of this site was judged at Phd or similar, the last time I checked it with one of those online tools. The Accumulator has brought it down a tad — although his penchant for obscure words even offsets his plainer speaking, in textual analysis terms. Although his cartoons are pretty accessible. 😉

    As for financial literacy, I regularly meet graduates in good jobs who can’t do percentages.

    Hence my 50% estimation — which on reflection is probably too high.

    Yes, RIT is correct that the mechanics are simple. But as ermine and others say, there’s more to it than the “How”.

    Arriving at understanding why those mechanics work is not simple. (Consider all the arguments we still have even among intelligent investors on some factors, such as diversification across asset classes including currently unattractive ones like bonds).

    Even more so, getting them across the minefield of more lucrative sounding schemes is even more of a challenge.

    I actually don’t think passive index funds *have* to be part of the picture. Investment trusts or lower-cost active funds — properly diversified and not churned and chased — can also get you there, at the strong chance of doing worse than index funds due to fees, for the slim chance of doing better. But a great number of people will probably always prefer the perceived benefit of a human manager, rightly “or” wrongly.

    Some (like me) will be drawn to DIY it with shares. Again, not what I’d *suggest* — it’s even riskier, but it’s doable.

    What DOES need to be part of the picture is regular and substantial saving, no initial or recurring fees to a further layer of advisers (these have largely gone now post-RDR), as low as fees as possible for your chosen methodology, and a sound long-term strategy with no buy high sell low returns (so no buying gold three years ago and emerging markets two years ago and swapping them into Japan at the start of the year, ever ratcheting down your returns).

    Hence why the automatic passive approach will be best for most — because it avoids all this temptation.

    Perhaps if RIT’s scheme were government mandated then we’d see more than 50% of the population DIY-ing it. But the government is currently insisting pension funds hold outsized allocations of low/no real yield long-term bonds, so I wouldn’t hold your breath.

    Thanks for the nice words about Monevator, as ever! 🙂

  • 30 Christopher Down March 24, 2014, 12:04 am

    A very interesting discussion above.

    I just wanted to add to one of the comments made which was that you can’t hold residential property in your SIPP or ISA. While it’s true you can’t hold assets directly, you can invest in the asset class if it is through an FCA authorised fund. Hearthstone operate such a fund and it has about £30m in it right now, some of which is SIPP money.

    I don’t want to discuss the Hargreaves issue but it’s fair to say they are negative on residential property for reasons which the rest of the self-investment universe don’t appear to agree with. Our fund is listed on many other investment platforms including Interactive Investor, TD Waterhouse, etc.

    With regard to exposure to residential via one’s own home, yes, absolutely. But that doesn’t stop the enormous buy-to-let industry – £5bn of mortgages in Q2 2013 alone according to the CML. These individuals are clearly happy with getting more exposure to rental income and growth, and the data on the asset class suggests they should be. Also, most people I know don’t tend to regard their home as a manageable investment – it may go up or down in value, but you wouldn’t sell it and move into fixed income, for example.

    At Hearthstone we let people make their own minds up but I did just want to comment on the ISA/SIPP eligibility of residential – it can now be done. Very relevant given this last week’s budget!

    Good luck with all your investment choices.

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