What caught my eye this week.
The knowledge gap about money and investing between you guys and the average person in the street is staggering.
A reader let me know me recently that their “genius level” friend was left baffled by our website. I was pointed to the story in the comments on the Financially Free By 40 blog:
I love Monevator, and the authors, and the content. The site has helped me so much and I’m wildly indebted to the cheapest broker table.
I suggested Monevator to my (bright, mathsy, actual genius-level-IQ) relative because I wanted her to consider dumping her expensive IFA and go it alone.
I sent a couple of Monevator links, including the one to Lars Kroijer’s excellent video series.
Instead of following the links, she searched for Monevator and started reading the first page, which was a wildly complex post (I think about tax efficiency of bonds and bond funds).
She dutifully ploughed through the first two-thirds of it, before being utterly convinced that investing was too hard for her to do alone, and that she needed her comfort-blanket IFA more than she realised, and that her IFA was doing all this in their sleep […]
It’s great that Monevator has the detailed bond-focused page, it is a useful resource; but without a flashing warning for newbies to go avoid reading it as a first article I’d struggle to recommend it to a beginner.
Does that make sense?
I’ve swapped a few emails with this thoughtful reader and we’ve agreed there’s no easy solution, particularly for an established site like ours.
I think we’re pretty much set up for fanatics now. Or at least the pretty clever
If you think I exaggerate, then go test yourself via the short financial quiz that CNBC published this week.
Don’t worry – it’s a US site but the questions are relevant wherever your are in the world.
And double don’t fret that you’ll get something wrong and be left virtually blushing in front of your fellow Monevator readers.
While fewer than one-third of Americans could answer all three questions correctly, most of you will ace it 100%.
Income inequality and wealth inequality are hard enough to do something about. But I have no idea how to tackle this gap.
From Monevator
Find out when you’ll make your million – Monevator
From the archive-ator: How much interest do you earn on a million pounds? – Monevator
News
Note: 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.1
Well-off savers are using the pension freedoms to dodge inheritance tax [Who saw *this* coming? *cough cough*] – Telegraph
The biggest investment winners and losers in ten years after the crisis – ThisIsMoney
Political uncertainty blamed for slowdown in UK property market – Guardian
Americans are dying younger, saving corporations billions – Bloomberg
She retired at 28 with $2.25m – CNN Money
Hedge funds gaining influence due to passive boom [Salt – take a pinch!] – Bloomberg
Divorce case pension sharing orders on the rise [Search result] – FT
Here’s how unicorns2 trick you into thinking they’re real – Bloomberg
Pensioner households tripled income over 30 years, workers’ only doubled – Guardian
Products and services
Bank of Cyprus UK cuts top savings rate to 1.2% after three days – ThisIsMoney
Do I really need a titanium credit card? [No. Search result] – FT
Pension charges saver hundreds in fees on pot that didn’t budge – ThisIsMoney
Should you sign up for EDF Energy’s 20-year solar panel trial? – Guardian
Calls to bring back 100% mortgages to combat wealth inequality – Telegraph
Do you have a stamp collection? Get a free valuation – ThisIsMoney
Comment and opinion
Goodbye BTL: A landlady of 13 years says it’s all got too costly… – Guardian
…and she is hunted down and vilified online for her candor – Guardian
Bond bubbles tend to slowly deflate, not burst – Bloomberg
3 reasons index fund investors deserve perdition… or not – Morningstar
What would happen next if this was 1929? – The Irrelevant Investor
10 topical questions – A Wealth of Common Sense
Why you feel richer or poorer than you really are – Science of Us
There are no constants in investing – Pension Partners
A decade on from the ‘quant quake’ that roiled factor funds – Cliff Asness
Tesla: A disruptive force and a debt puzzle – Musings on Markets
The case for becoming a ‘10% entrepreneur’ – Patrick McGinnis
“The solutions he proposes generated a reaction within in me that I was surprised about – my response to them was mostly, ‘Okay, that makes sense – but you first.’ Who wouldn’t want their own children to have every possible advantage under the sun? Who doesn’t see the wealth they accumulated as earned and deserved? I’m all for leveling the playing field, as long as I don’t have to drop whatever opportunities I’m able to secure for my own kids. “ – The Reformed Broker
Off our beat
For some reason, Dan Carlin is giving away his nuclear war history lesson for free [Podcast] – Hardcore History
DIY genetic testing firm 23andMe faces new challenges – Fast Company
The cost of a free lunch – Raptitude
That Google Memo: Four scientists respond – Quillette
Brian Cox has anecdotal data on climate change’s Barry Blimps – Twitter
Thieves return bike with ‘awesome’ apology note – Telegraph
And finally…
“As Fama put it, ‘Life always has a fat tail.'”
– Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management
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I guess on the pensions and well off savers, wouldn’t most people prefer their nominees get the money rather than the insurance company / pension provider keeping it? I assume that was more or less the state of affairs before the freedoms came in.
Though the life insurance approach means this was always available to those savy (and rich enough) to buy one.
If African-Americans invest they invest more in bonds than equities.
I scored 3 for 3 which puts me in the top 30% of respondents. That is truly scary given the question complexity. Not scary for me as psychometric testing that I’ve undertaken in the past puts me above the top 3 percentile grouping from both a maths and an analytical reasoning perspective. More scary that it would seem trivial to take 70% of the population for a ride if you were so way inclined.
That said it doesn’t surprise me in the slightest. In my travels I regularly encounter people who can’t calculate a simple %. No wonder ‘financial experts’ get away with charging 1.5% on everything you have invested annually…
All that said I can’t throw too may stones though. My written English is woeful… Figuring out how to become financially independent in less than 10 years I can do. Writing a Shakespeare I can not.
I’ve often thought you really need an obvious New To Investing Start Here link to the basics for new readers.
It is a bit off this site’s beat, but Dan Carlin’s Hardcore History is AMAZING. I can only assume he’s giving that episode away for free for some kind of educational reason.
Mr MM has a list of useful links for newbies on his home page. Perhaps this site would benefit from a ‘front door’ like his?
Psychology is at the root of almost everything, so often it looks like people are dumb, but actually they only did a dumb thing because of hard-wired cognitive biases in their brains that they’re powerless to resist. (to be fair, most of us are susceptible to this by definition)
I have some acquaintances who’re MBA’s, and/or Phd’ s and/or can program, yet don’t/won’t understand the absolute basics of insurance, pensions or investing that a sixth-former could; by reading this site alone.
Some don’t want to take responsibility in case they’re blamed for a mistake if it goes wrong, some are lazy, some are bored by it, some lack confidence in their abilities. The brightest I know told me with absolute certainty that it wasn’t worth his while learning this stuff because he’s paid so highly that it wouldn’t counter the (time) opportunity cost.
BBC Radio 4 on now – Money Box “The Death of Retirement” http://www.bbc.co.uk/programmes/b090v3bq
I think it must be cognitive biases leading people astray – described much better than I can on http://www.psyfitec.com/ – with some encouragement by the investment industry, who have an interest in making things sound hard.
I remember, close to the start of my investment journey, reading a comment on a more general forum than this, along the lines of:
“I’ll never trust the stock market with my money. I mean, you can lose 90% of your money just like that. And if you do, it’ll take *900%* growth to get you back to where you started.”
It was said, without irony, as if the growth percentage being so massive somehow made the percentage growth worse than the percentage loss.
It also isn’t the first time I’ve seen people treat percentages in such a linear fashion and use them in their own right to try to scare people – because the big numbers that are important seem fundamentally more ‘massive’ and ‘scary’ than equally important small numbers.
Fascinating.
@Matt — I was being a bit tongue in cheek. 🙂 I think he’s done it because the US President is threatening to unleash “fire and fury” and has asked before why have nuclear weapons if you don’t use them.
I wonder what “genius-level-IQ” might mean.
“I don’t think the Money pages of the Guardian can ever be accused of being pro-landlord.” Yeah, they are broadly of the “kill the kulaks” school.
“Pensioner households tripled income over 30 years, workers’ only doubled”: hurray, a great blow for equality.
Is writing in white on a black background a sign of an incipient mental disorder?
I love the Telegraph article:
-‘Lenders, brokers, academics and other property commentators claim the the “kneejerk” response to ban 100pc home loans lacks logic, is socially divisive and will “store up enormous social and financial difficulties in decades to come”.’-
Which planet do these people live on? 100% mortgages…then 110%? I think it’ll be pretty easy to find a lender, broker, academic and commentator to make any ridiculous statement you could think of! Where’s a Monty Python sketch writer when you need one? 🙂
Perhaps you should consider starting a sister site (maybe you have already got one) keeping it extremely simple. you have amazing content already (which you would need to shorten and dumb down), this might give fresh inspiration and financial benefit. Monevator is excellent but niche, a certain mindset benefits from your hard work (thank you by the way). Of course you would have to sit on your active investing hands….. MSE was right place, right time with a simple message and straightforward action. tap into that 70% and probably most of the 30%
Question 4
You are an early retiree and have a portfolio of £875000. You don’t follow the 5/25 rule but withdraw Your inflation adjusted money and rebalance Your portfolio once a year for example on Your birthday. On Your birthday You want to withdraw £27200. The current (£;%) and target asset allocations:
UK equities: £70000; 8% vs. 6% target
Developed world ex-UK equities: £350000; 40% vs. 38% target
Global small cap equities: £70000; 8% vs. 7% target
Emerging market equities: £96250 ; 11% vs. 10% target
Global property: £35000; 4% vs. 7% target
UK gilts: £192500 22% vs. 26% target
UK index-linked gilts: £61250 7% vs. 6% target
How would You withdraw and rebalance?
I think some people don’t care enough about money to go to the effort of understanding it, if they aren’t in a hurry to retire or have enough as they are they might not bother
But for me I had to slog my guts out for a pittance, and I didn’t want to carry on doing so, so I had a motivation to learn
@Gregory, Pick me, Pick me…
Using my analytical reasoning skills you haven’t really given us enough information:
– You say you don’t want to use the 5/25 Rule but don’t detail what rule you are using. Surely you’re not going to rebalance every fund no matter how far from nominal you are as that would incur trading costs that might not be economically sensible. I’m going to assume you’ll rebalance if an asset class deviates more than £4,000 which means in this instance you’re going to be buying/selling every asset class this time around.
– You don’t say if your assets are held in Inc or Acc products. Given you have no cash anywhere I’ll assume Acc. Inc would have made this easier during both the accrual and drawdown phases IMHO but let’s move on.
I’d just do the maths with Excel as it’s just 5 minutes and a few cells work then:
– Column A – Asset name
– Column B – Current Asset Value which sums to £875,000. Just below that enter your £27,200 withdrawal and then subtract £27,200 from £875,000 to give you your total value post rebalance = £847800.
– Column C – Current % (You don’t actually need this column but it helps with a quick visual that your maths is directionally right when you get to buy/sell)
– Column D – Target %
– Column E – Target £ per asset class = Target % (Column D) x £847,800 (Your total value post rebalance cell) with a fill down
– Column F – Sell/(Buy) Amount per asset class = Column B – Column E with a fill down
QED
@RIT – the spreadsheet looks like it might be very useful to more of us than solely Gregory, but I can’t visualize how to put it together (some of us have very primitive Excel skills, yes, my head is hanging), especially the combination of cells and percentages. And I don’t understand Column E or what ‘fill down’ means. Any chance you could rustle up a template that could be downloaded by Monevatoristas?
Worth a try ….
@matthew I come across lots of people who don’t want to put the effort in. They’re looking for “the secret” that will give them what they desire with no effort. It doesn’t just apply to money.
If you tell them there is no secret – it just needs a bit of self education and a bit of effort – they either get upset or seem to think you’re lying.
“The knowledge gap about money and investing between you guys and the average person in the street is staggering.”
Oh, goodie. After all, “in the land of the pigs, the butcher is king” (with thanks to Jim Steinman).
@Tyro
Happy to try and help. I don’t have any facility to publish Excel sheets so I’ve pulled a quick post together, with images showing structure and formulas, to try and explain more. It’s here:
http://www.retirementinvestingtoday.com/2017/08/annual-rebalancing-excel-calculator.html
@TI
I know it’s not good form to publish links to my own site. Please do delete if you think it’s not appropriate.
If teaching the young financial stuff is the question, reckon I would start with debt and budgeting and the impact of compound interest. Investing could maybe wait until later……
People don’t like thinking, which is kind of a shame as it’s one of the few things we’re better at than animals and (for now!) machines.
Those three questions are ones that any 11 year old should be able to answer IMO. That a grown adult should get them wrong is deeply worrying. What have they been doing with their brains?
I recently had a *deep* discussion about bonds and gilts with a friend of a friend, and I was very surprised how deep his knowledge was, and ditto him regards mine when we got deep into yields, duration, CoCos, CAC clauses, convexity, PIBs, and the shitty trick Lloyds pulled with their ECNs. When friend wandered over, FOF said “Hey, you said this guy was a software guru but he knows more about finance and securities than me!” (not true!). It seems FoF spent a career as an international securities trader, arguing the toss with the big guys who were being threatened with hair cuts, and writing bond prospectuses. Wow!
@RIT & TI – thanks, both.
I was surprised recently after a few curious conversations with ‘young ‘uns’ (~20’s) to try and guage their level of interest as well as knowledge of things ‘finance-related’. Admittedly it was a small sample size, but on the whole they really seemed to realise they have to get it right or seriously suffer the consequences and were keen to learn. I really didn’t expect that, so I’m guessing the current media attention to their prospects has focused them on it; does anyone else have any experience on this?
That 10 year returns graphic on ThisIsMoney for different asset classes is a stand out for me this week.
Coincidentally iShares have recently announced a new diversified commodity swap ETF. Of interest for anyone seeking an asset class that could provide an inflation hedge (from here on anyway – not the last decade) while being uncorrelated with equities or bonds/interest rate movements.
And if it does rubbish for the next decade as well then we’d surely be in a strongly deflationary world?
I’d think about that iShares ETF as a diversifier for somewhere between 5-10% of portfolio depending on whether you already have some gold.
@Investor
Thanks to correct my wrong comment. Unfortunately we are not able to correct our comments after pressing the Submit button. I always discover mistakes in my comments after sending but unable to correct them.
@Retirement Investing Today
After 3 primitive questions https://www.cnbc.com/2017/08/11/most-americans-cant-answer-these-basic-money-questions.html my intention was to illustrate that a lot of DIY investors (Monevator readers are exception of course) will have problem with withdrawing and rebalancing a simple portfolio. Plus there is a constant temptation to tinker.
I strongly believe without a financial advisor the majority of DIY investors would be better off using target dated funds. “The investor’s chief problem—and even his worst enemy—is likely to be himself.” Benjamin Graham
@FI Warrior – The smart ones work out that nothing makes as much difference as accumulating capital and then efficiently allocating that capital.
If you play the percentages, human capital is most important to begin with as that allows the quickest accumulation of actual capital starting from zero, but for most unless they have equity and ownership in an operating business (e.g. human capital working for them), then it switches to actual capital which is invested.
The opportunity cost of not saving from PAYE and investing is absolutely massive – especially as what has worked previously (rampant house price inflation) is unlikely to be repeated in next 30 years.
My future earning capability is still my biggest asset, I think (not being quite sure how to calculate it).
https://www.theatlantic.com/magazine/archive/2017/09/are-index-funds-evil/534183/
Hi TI,
I hope that you will find the attached link to Frank Partnoy’s article on Passive Investing interesting.
My reading of it was that low fees for investors are good, while the risks of companies with common owners not aggressively competing are low / unproven.
Just a shame about the click bait headline.
Tks,
Bill
Off topic – I have found your compare broker page very useful, so this is a potential improvement on that. I am now waiting for my Vanguard dividends from Alliance Trust since the 5th of July, i.e. coming up to 5.5 weeks. Would be fantastic to know if this is the delay with other brokers as well and maybe something to add to the comparison page.
With IWeb I never have to wait more than 3 days.
@Andy (Comment 4)
This is something I’ve recently been thinking about and it got to the point where I’ve started a blog https://www.HowToSaveCash.co.uk (I know, just what the internet needs, another blog) which I’m hoping becomes a sort of front door to Monevator. The blog was born out of frustration that financial literacy levels are so low, when it really doesn’t need to be and Monevator can be a little overwhelming for a complete saving/investing beginner. I must add, this is a personal project of mine and in no way am I working with Monevator.
You could consider a beginner/first visitor post/header/bulletin that sits above the newest posts when you visit the homepage, however it could have a ‘HIDE POST’ button that regular visitors can click once and never see again.
It’s amazing how supposedly intelligent people, or rather, academically educated people have a total blindspot for things financial.
It’s not even *that* difficult and when you realise you’re trading your time for money (the workplace) it really should encourage you to put some effort in.
Imagine how stupid the average person is. And then remember, half of them are more stupid than that.