Good reads from around the Web.
I think successful DIY investing [1] 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 [2] 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 [3].
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 [4] 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 [5] [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
- The biggest DIY investing challenges – Canadian Couch Potato [6]
- Index investing conferences are extinct – Rick Ferri [7]
Active investing
- Better chances coming to buy dividend shares – Clear Eyes Investing [8]
- Twitter: Trading Vs Investing – Musings on Markets [9]
- Nassim Taleb Vs Reality – The Aleph blog [10]
- How Gangnam Style puffed a dull stock – Turnkey Analyst [11] (via AR)
- Tracking important market prices – Calafia Beach Pundit [12]
- Investing for retirement [Video] – Vanguard via DIY Income Investor [13]
Other articles
- How big is your Circle of Control? – Mr Money Mustache [14]
- Living in a low return world – Abnormal Returns [15]
- When to stop betting – The Retirement Cafe [16]
Product of the week: According to a report in The Guardian [17] today, Scottish Power’s ‘Online Fixed Price Energy [18] 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 [19], 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 [20]
Passive investing
- Rebalancing overhyped? Bogle et al in CNN [21] plus debate [22] (via Mike [23])
- In recessions, active still lags indexing – Swedroe/Moneywatch [24]
- New Federal Reserve chief is an index fund fan – Index Universe [25]
- The small cap premium is alive and well – Index Universe [26]
Active investing
- Royal Mail: Stick or twist? – Telegraph [27]
- How to beat billion dollar hedge funds – The Motley Fool [28]
- Are you investing beyond the buoys? – Swedroe/Moneywatch [29]
- The quest to develop true active fund ETFs – Forbes [30]
- Complexity is used to fleece sophisticated investors – FT Alphaville [31]
Other stuff worth reading
- Sound the retweet: Irrational investors – The Economist [32]
- Food gadgets that could save you money – Guardian [33]
- Help to Buy: Most cash-poor earners still priced out – Telegraph [34]
- Should we tax the rich more? [Graphs, data] – Telegraph [35]
- The making of The Wolf of Wall Street – WSJ [36]
- Music scenes are like stock market bubbles – The Atlantic [37]
Book of the week: I’m still working my way through Investing Demystified [38]. Like Tim Hale’s Smarter Investing [39]
Like these links? Subscribe [40] to get them every week!
- 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”.” [↩ [44]]