Embedded Files
Before we get stuck in, I should note that my preferred approach to investing is just one route available to you. It is an investment route that is fast-becoming very popular. It’s easy to set up, requires no work to keep it running and anyone can get started with just a very small amount of money. And we’ll take a closer look at it during this chapter. But some people prefer other methods of investing. Whichever route you take, you should do your research and feel comfortable with it before you invest. It is your hard-earned money, after all.
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The fallacies
The fallacies
Most UK adults would say they don’t invest in the stock market. But if you have a company or private pension, you’re an investor. Whether you’re paying into that pension or drawing form it, the chances are you’ll have money in the stock market; possibly quite a lot of money.
The typical British worker has a portion of their salary sliced off and directed to their pension each month. This get topped up by contributions from their employer and the government’s tax kitty. And there it remains in a mysterious blackhole for years. Until they close in on retirement, it often goes unknown how the money is invested and what it’s worth. The extreme likelihood is that it’s actually churning away on the stock market, growing and growing, into something quite magnificent. Hopefully, a big pot of gold that will keep that investor warm, clothed and well fed when they stop working.
Investing is not limited to pensions, which come with brilliant tax perks but are out of reach until you hit the access age of (currently) 55. You can invest any time you want, with any life goal or purpose in mind.
Despite this process of pure alchemic beauty, there’s a fear associated with investing. People are scared of it and bemused by it. They consider it beyond their comprehension and beyond their financial means. Even though they’re already doing it. This is a crying shame and the fault of the investment industry itself.
The truth is that investing can be easy and not nearly as risky as you might imagine.
The bankers and financial advisers can’t have you thinking like that, else they’d be out of a job. So, as one, they create an illusion of complexity. The whole finance industry is like this, but in the investment arm they really go to town, producing glossy sales literature with dazzling charts, all crammed with ridiculous jargon. Their strategy is to perpetuate the myth that we couldn’t possibly know what we’re doing without them. There are some very good eggs in their ranks but by and large we simply don’’t need the vast army of financial advisers and wealth management bankers in operation today.
Unfortunately, we can unwittingly behave as if we do. As a nation, we have a tradition for being reserved, stoic and cautious. But despite our general fear of investing, we’ll occasionally burst out of our bubble and speculate. We secretly love an inside tip. We get excited about a deal that sounds too good to be true, even when we know it’s almost certainly too good to be true. We give airtime to a get-rich quick scheme, just in case this time it’s the real thing. We can be irrational, greedy creatures. The thrill of turning a few quid into a small fortune is too compelling. The human psyche is, again, our nemesis. Fear of missing out is perhaps the greatest fear of all. And investing is a fomo-magnet.
Bitcoin is a good case in point. More than one in 20 Brits have bought into the highly speculative, headline-grabbing cryptocurrency. I’d hazard a guess that most don’t fully understand what it is or how it works. Millions of people open online trading accounts every year and put good money into extremely complex and fast-moving investments - the kind that move so fast that a trip to the toilet at the wrong moment could cost you dear. Yet still many take the plunge only to discover they lose quicker than they can learn. And it’s common to hear of proudly keen savers, reluctant to invest, suddenly snap up a few hundred shares in a random company on the say-so of a distant relative, a colleague at work or a mate down the pub.
This is not a good look, especially if that investment turns to mud. It sets the stage for the crisp-suited financial adviser to swoop in with a cheesy grin, an arm around the emotionally-bruised shoulder and a stack of mind-boggling graphs at the ready. We fuel their existence with our rash decisions.
Investing money is much like earning it and spending it - if done right, in line with your Values and free of erratic human emotion, then it can help you live a fantastic authentic life, full of rich and personal experiences. Only fools rush in, but there’s no need to be wary of investing. There’s no need to pay an expensive adviser to do it for you. And there’s definitely no need to wait for Uncle Bill’s next stock market tip.
To save or invest
To save or invest
‘Investing? That’s for rich people. I don’t have enough money.’
You do have enough money. You can start today with a very small amount. In some places, as little as £1.
‘I don’t want my money tied up.’
Don’t worry. With a lot of investments these days you can always sell up and withdraw if you need money sooner than planned.
‘But I don’t know what to do.’
It’s really simple. A lot of services now do it all for you. It can be as easy as opening a bank account. We’ll go through some of the best ways to invest and what kind of investments might work for you.
‘I’m scared I’ll lose it all.’
If you buy shares in a company and that company goes bust, then you could lose it all. But that’s a dumb way to invest. An old-fashioned view of investing. We're going to look at the smart, modern ways, which can far more reliably generate a good profit.
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A lot of the money in savings accounts has lost its value over the last 10 years or more. The interest rates have been so low that they’ve been outpaced by inflation. So, as the price of the things we buy has increased, our savings have not increased by the same amount; they’ve been unable to keep up. For those using savings accounts, it's been a torrid time.
Investing in the stock market you can potentially get your money growing much faster than inflation.
Interest rates on savings accounts have typically been at best around 1% to 2% since 2008 and there are few signs of that changing any time soon. Returns across the whole stock market are on average far higher, anything from 5% to 10% a year, depending on which of the main markets you analyse. You have some years of big ups and some of big downs, unlike savings accounts which tend to stay more consistent, but over time they have given investors a lot of profit.
When interest rates are so low, saving has very few uses. A chunk of cash in a bank account is a good contingency plan in case things go wrong, like you lose your job or the roof falls in. Or, if you’ve achieved all your investing targets, you may want to sell them to lock in the profits, knowing ‘your work here is done’. Apart from that, saving - having your money in the bank - is a blunt instrument.
We’ll focus primarily on the stock market in this chapter but there are many other different ways you can invest and a lot of the principles of the stock market apply to the full universe of investing.
The universe of investing
The universe of investing
You can invest in almost anything: company shares, government bonds, gold, copper, oil, loans, property, land, art, antiques, wine, a local business, a kick-starter project, shipping containers, sports memorabilia, comic books… yourself!
Investing in property is a British obsession. We’re homeowners at heart, not renters. Early adult life is all about getting on the property ladder. We see renting as money down the drain. This is largely because the government, for many years, persevered with laws that favour landlords not tenants. Our European counterparts think we’re crazy. In Germany, landlords can’t just sell up when they fancy it. In France there are strict controls on rent increases. But not so in the UK. Quite the opposite. Our statutes are more capitalist and consumerist, less socialist. So from an early age, we strive to own our own home - for security; to escape the fragility of renting. Then some of us realise we could borrow even more money for a buy-to-let. The credit cave is very generous here - we are warmly encouraged to take on more debt to grease the wheels of the economic framework. We already know that landlords are pretty well protected from our experiences on the other side of the fence, as a tenant. So we plan to get a second property as an investment, rent it out and turn the tap on a new income stream.
This cycle of demand has fuelled the relentless growth in UK house prices for decades. It’s not so much about property breeding confidence because it’s a ‘tangible’ investment, or ‘bricks and mortar’ as is frequently claimed. It’s because a collapse in the housing market seems inconceivable. Generation after generation have only seen prices go up in the long run, not down.
Property investing has certainly been highly lucrative for the majority, ever since the 1960s when the average house price stood at around £2,500. There was then a major surge in the eighties and nineties, only minor derailments through the dot-com bubble and financial crisis of 2008, and going into 2020 the average was hovering around the £230,000 mark. That represents an increase of more than 700% over 35 years. (Not as impressive as stock market returns over the same period I should add, but still very eye-catching.)
But there are dangers to property investing. The growth numbers are, like any investment, historical and not future-proofed. With property, you can end up with all your money in one investment - a cardinal sin of investing. Your property might suffer a serious collapse or tenants could cause severe damage. In the UK there’s less motivation for tenants to keep a place in good order. There are maintenance costs, stamp duty and legal fees to consider - when selling as well as buying. You might be taking on more debt in the shape of a buy-to-let mortgage, which is also generally considered extremely aggressive investment behaviour. An interest rate rise could spike your repayments, beyond what you’re getting in rent. It might be hard to sell when you most want to, depending on market conditions. And you can’t just withdraw your money at will, or easily take small chunks out at a time, like you can with many stock market investments.
All that said, property investing has its time and place. Stock market returns have generally been much better than house price increases but this doesn’t account for the rental income you can also get on property, which ultimately makes property very attractive. Investing in property works out if the price goes up significantly from when you buy to when you sell, over and above inflation - this is the great unknown - and if you can rent it out at a good price consistently through that period with your income easily exceeding any mortgage payments and maintenance costs.
You can also invest indirectly in property through stock market shares and funds, without having to buy a place, maintain it or collect rent. You can lend money to property development projects and earn interest. Since 2010 a number of firms - known as ‘peer-to-peer’ - have launched such services. Some are going strong but some have already gone bust and investors have lost a lot of money.
The new-ness of any investment firm should prompt you to do extensive research before you commit. If they’re not properly approved by the regulator, the FCA, and are not covered by the FSCS (Financial Services Compensation Scheme) which might protect you for up to £85,000, then proceed with supreme caution, if at all.
The stock market
The stock market
We’re going to zone in on the biggest planet within the universe of investing: The stock market. Or more precisely, stocks, bonds and commodities. These broadly represent the main investment markets in the world and I believe this is where everyone, the mass population, can invest with confidence, once they know just the bare basics.
Stocks are effectively company shares. If you see the word ‘equities’, it’s the same thing too. You can buy and sell stocks on the stock market. The price of a company’s stock bobs up and down all the time as investors buy and sell. They do this based on whether they think the company is going to do better than expected in the future or worse. If investors think the company will do better than expected, they buy stocks in that company, thinking the price is low and that it will rise in the future when that company announces some brilliant business results. At that point they can sell and make a profit.
Trying to predict all this is, in my opinion, futile. Millions of people are betting on the blind futures of all these companies every day, thinking they have a crystal ball. They don’t. A select few seasoned traders and industry specialists will be able to regularly make money this way because they have unrivalled knowledge in a particular field. But it’s certainly not for the mass-market.
Bonds are like loans. A company issues a bond, that you can buy, so they can raise money and use it to grow the business. Governments issue bonds too, when they need to find the money to deliver projects or support a part of their national system. When you buy a bond, the company or government will pay you back after a period of time with interest. Bonds are more stable than stocks. The interest you get is usually more static so it doesn’t jump around all the time and it’s fairly reliable you’ll get your money back if it’s a big, well-known organisation.
Commodities are everyday useful products, things like oil, sugar, cotton, beef, orange juice. The price of these also go up and down, as the supply and demand for them changes. An investor might think there’s going to be a better-than-expected harvest of wheat this year and so they buy thinking the price is low, hoping the price will rise in the future, when they can sell.
My principles of investing
My principles of investing
Spread it: ‘Few, many, most’
Few: You could invest in an individual company, or pick a few companies. This is quite a traditional approach to investing but it can be fraught with danger. The company’s stock price can be volatile, flying up and down from one day to the next. You might make big profits but you might make big losses. And if the company you invested in goes under, you could lose the lot. Established companies do fall - think of household-name retailers like Woolworths, Dixons, MFI and Phones4U. Bankruptcy has also hit some of America’s largest institutional giants - the likes of Lehman Brothers, General Motors and Enron.
Many: You could invest in an ‘active fund’, which typically contains a number of companies’ stocks. There is a fund manager who will decide which stocks go into the fund. They will sell some and buy new ones over time in an attempt to make better-than-average profits. It’s less dangerous than buying individual company stocks. If one company does badly then you have the rest to potentially prop it up. But fund managers might have a good spell followed by a bad spell. Ultimately they’re guessing. Those guesses are probably more educated than the ones you or I could make, but they’re still guesses. The list of best-performing active funds and fund managers can change a lot from one year to the next, even one month to the next. So chasing the best ‘star fund’ of today doesn’t mean you’ll be invested in the best tomorrow. Even those with a seemingly long and near-perfect track record can dramatically falter. Neil Woodford is a good example. After years of success he was hailed as the man with the Midas touch. His funds had attracted many thousands of investors and many billions of pounds. But it all turned sour in 2019. The investment choices in his flagship fund were, to some, looking ropey. Investors got nervous and started to pull their money out. He suspended the fund and blocked withdrawals. Eventually the fund was shut down, Woodford was forced to resign and investors were left to battle over the crumbs.
Most: My preferred way to invest - which I like to call ‘most’ - is in a ‘passive portfolio’. It effectively contains thousands of tiny little investments, altogether tracking big sections of the entire stock market. It extends even further the idea that, if one investment struggles, you have loads of others to prop it up. You probably wouldn’t even notice the impact. Your money is backing large swathes of the stock market as a whole, not just a collection of discreet points within it. Some investors prefer active funds, the ‘many’ approach, because they feel a fund manager who is actively managing it can make better profits than simply tracking what the whole stock market does. But there’s now much evidence to suggest that active fund managers can consistently fail to reach such targets and that you’d be better off just tracking the stock market.
If you buy stocks in a few companies and one goes bust, you could lose a lot of your money. Imagine having your whole future reliant on just a couple of apples and one goes bad.
If you invest in an active fund, you’re reliant on a bunch of companies. And the fund manager. It might do better than the stock market as a whole or it might do worse. Big funds can go bust, like Woodford, one of the biggest of its kind, in which case you could lose substantially.
If you invest in a diverse passive portfolio, across a wide spectrum of the stock market, you’re pretty much investing in the broad concept of global business and capitalism. A financial crisis would cause the prices to go down for a while but it seems extremely unlikely the whole global capitalist system would collapse.
Investing in ‘the most’ has become an increasingly popular way to invest. It’s easy to do and is in my view a really sensible way of fairly reliably making a profit for very little effort.
Risk and reward
The word ‘risk’ in everyday language triggers alarm bells. It’s a negative. In investing, it’s not. It’s a neutral term. The risk of an investment usually describes how volatile its price is expected to be - that is, how much it can go up and down in value over time. High risk can mean wild price swings; low risk tends to predict mild variations in price.
Within the sphere of passive portfolio investing, you get degrees of risk. Some portfolios will be considered relatively lower in risk. These might contain bonds and other investments deemed less volatile and more stable in price. Meanwhile, the higher risk portfolios will contain practically all stocks. But they all follow the same principle of spreading your money across a vast number of investments. Making them diverse.
The level of risk you go for in a portfolio is down to what you’re most comfortable with. Generally, higher risk sits well with long-term plans, like building up a pension pot over many years. History suggests that higher risk will in the end give you bigger profits. But you should be prepared for the value of your portfolio to bump up and slump down along the way. The peaks and troughs might be more dramatic.
Lower risk portfolios are still likely to go up and down in value but much less so. The dips and bumps are more gentle. This might end up giving you lower profits overall but, if you don’t like seeing your money shoot up and down in value too much, the journey could be emotionally calmer for you.
You could think of a ‘high risk’ portfolio as an attacking football team. They’re full of goals but can also concede. The games are thrilling end-to-end affairs. They want a 5-1 demolition. ‘Low risk’ is more of a dogged, defensive-minded football team. They don’t give away many chances at the back but are less inclined to bomb forward without good reason or score spectacular goals. They’re happy with a boring 1-0 win.
Time
Investing is undoubtedly a long game. It should be mundane, slow and boring - not the thrill-a-minute ride of the Hollywood trading movies. The longer you invest in a diverse, passive portfolio, the better your chances of making a profit. And the longer you invest, the bigger that profit could be.
Doubling your investment time you can reasonably expect to more than double your potential profits. Trebling your investment time you can reasonably expect to more than treble your potential profits. As your profits are re-invested, so your growth curve bends higher upwards.
Analysts looked at global stock market data from January 1971 to September 2018 and found that if you’d invested for any one day within that timeframe, your chances of making a profit were 51.4%. Pretty much 50-50. Investing for a period of one month, your chances of making a profit went up to 62.9%. After one year it was 77.9%. But investing for 10 years and your chances of making a profit shot up to 98.7%.
The key behaviour here is staying in the stock market. Some investors try to time their moves in and out in attempt to ‘buy low, sell high’. Data suggests this is usually more harmful than beneficial. Stock market returns can average out at a healthy 5% to 10% per year, depending on which methods of calculation you go with, but it’s never consistent. Far from it. There are some years of big profits and some of big losses. We can’t accurately predict what will happen. No one can. So it’s best to sit tight and ride the waves.
We instinctively look for short-term wins. We therefore look short-term historically too. We want to know how much money an investment made last month, or last year. But that can be deceiving and crippling. You need to look much further out.
Just to savour - and perhaps even labour - the point, here are the annual returns from the S&P 500, one of the major US stock market indexes, since 1990. We can easily and very naturally look at the results from one whole year (a long timeframe in our hectic, modern lives) and get super-excited or super-deflated. But that’s too narrow. Looking over five, 10 or even more years, you get a better picture.
There is also the question of how much time you can or want to dedicate to investing. For me, I want as little of my time as possible engaged with it. I’d rather leave it to the experts and the natural market forces. But some prefer a greater sense of control and end up saturating their brain with investment knowledge, to the point they become an expert, on a par with the professionals. And that may put such personalities more at ease.
There’s another psychological facet to this. The Dunning-Kruger curve shows that in the early phases of gaining knowledge and experience in a subject, you can initially become over-confident. That first burst of insight and energy is emotional and you can quickly feel like you know it all. You’re the expert. You believe you’ve hit on something new. But as you learn more, you realise just how much you still have to learn! Your confidence dips, then sinks. In time you feel “Oh no, I know nothing!”. You plummet to exasperation and despair. Then finally, as you suck up yet more information, your confidence levels start to rise again, only gradually and more sensibly. Investing is a classic landscape for this kind of experience-flow. It’s because money is so alluring, especially the idea of landing on a new idea and making fast bucks.
Emotion
Time is forever forwards. You can never go back to cash in your portfolio at a previous value. So you never know when you might make the most money from an investment. Many investors, no matter how experienced, struggle desperately with this single fact of life. It drives them mad. Accept it and you’ll find your investment Zen spot.
You might cash in your investments today only to see them jump £300 in value tomorrow. Or decide to hold firm and not sell, only to see them fall £300. Never make decisions based on today or tomorrow. Have a target figure in mind - “I’ll sell when it hits £15,000”.
This is why it’s helpful to have a purpose or life goal attached to your investing. ‘I’ll sell when it hits £15,000 because then I can afford the camper van’. Those who invest just to grow their money, without an associated life goal, are more inclined to get caught up in the emotional turmoil of daily stock market fluctuations. They’ll hold out for another day, week, or month - just another £100, just another £1,000. But enough is never enough and they become susceptible to emotional trauma if that next day heralds a big drop in stock market prices.
When you look at the stock market movements over one day, it feels quite rocky. It looks eventful. And when you begin investing, this short view can feel disturbing. But if you look at stock market charts over a month or year, you’ll see in context just how small that daily blip probably was. As your investment experience grows and you witness more of these fluctuations, the daily view becomes quite meaningless. You wait until you have a longer timeframe on which to judge all those small movements as one whole.
As we’ve seen, when it comes to spending money, human instinct can cause us to make irrational decisions. With investing, it’s heightened. Our impulses do not lend themselves well to the investment process. We can over-react to little events. We anxiously focus on the present and forget the long-term future view. We bitterly regret the past. We still harbour an intense fear of missing out. We get cocky when our portfolio goes up in value and invest more. This is arguably, by the way, the worst reason for investing. If the local shop increased the price of beans by 20p you wouldn’t suddenly leap for joy and rush out to buy loads of beans.
Keep calm. Stay the course. As the research tells us, know that the natural pain of financial loss is almost twice as great as the natural pleasure you derive from a financial gain. And a drop in investment values is not, in any case, a loss - it’s only a loss if you then decide to sell it; until then it’s just a temporary price change. Don’t follow the herd just for the sake of it. Stay true to your Values. Don’t get over-confident (you probably haven’t suddenly struck on a way to beat the market and become an overnight billionaire.) Remember your life goals.
Investing is brimming with analogies. It’s like baking a cake. You need all the right ingredients, a careful hand and then a lot of patience and self-discipline so you don’t open the oven door until it’s done and ready. Investing is like a loving long-term relationship. You have the initial thrill of dating, followed by years of growth through the many ups and downs of life. I prefer to think of investing as like running, or training for a marathon. You start off with a few small, unsteady steps and over time you gradually increase your strength and stamina. Some runs feel good, some feel bad. But eventually you reach your prized goal and can bask in the triumph.
There are a number of investor proverbs that neatly portray the emotional aspects of an investment journey.
“There’s an easy way to leave a casino with a small fortune - go there with a large one.”
"It’s all about time in the market, not timing the market.”
“The four most dangerous words in investing are ‘This time it’s different’”
“Investing should be like watching paint dry or watching grass grow”
“Forecasts tell you a great deal about the forecaster; they tell you nothing about the future”
“Someone's sitting in the shade today because someone planted a tree a long time ago”
The ‘little, often’ approach to investing can reap substantial rewards. Assuming an average annual return of 5%, investing a lump sum of £1,000 for 10 years gives you £1,628. But add just £20 a month on top and you end up with £4,716.
Buying and selling
Once you decide to invest - let’s say in a diverse passive portfolio - there are different ways you can go about it.
One of your biggest considerations should be fees. The impact of investment fees on your profits can be staggering. Investment firms are adept at carving up their charges and burying them in the small print. You can have initial fees, ongoing retainer fees, platform charges, admin charges, trading costs, transfer fees, exit fees. Always work out the total likely costs up front. A difference in fees of 1% sounds like a small amount but over time it can take vicious bites out of your money.
The damaging effect of fees is felt even more forcefully on the larger amounts and over the longer timeframes you get with pensions. Imagine you had a pension pot of £250,000. Not an unreasonable sum at all for a pension. It’s quite common for a financial adviser to charge you 1%-3% of that amount for initial consultation and 1% a year thereafter for ongoing management. The ongoing management is likely to be generic, not bespoke to you. They might be saying the same thing to nearly every customer they have through the door. And you could be looking at £30,000-plus in fees over 10 years for that; an astronomical cut of your money, especially when they’re doing very little for it.
After years of investing, a lot of people end up with a rag-tag bunch of investments - some high risk, some low - sitting in multiple places. Consolidating them into one pot can give you a single cohesive view, making your life a lot easier, and can potentially make your investments a lot more profitable since you’re probably cutting down on your fees.
Unless you have unusual circumstances or complex tax arrangements, I strongly believe you don’t need a financial adviser, bank professional or wealth manager in order to invest. They will just be taking a big slice of your money for doing very little. Any financial expert you see that has a posh office, expensive suits, a top-of-the-range car and plays golf on the weekend, just think where that money has come from. Customers. You probably don’t need them. You could do it yourself online.
Under my preferred method of investing, you can simply open an account with an established UK investment platform and buy a low-fee ‘diversified passive portfolio', perhaps one of the Vanguard LifeStrategy portfolios. Products and fees can change so do some research first but, at the time of writing, these portfolios tick all the right boxes for me and it’s no surprise they have become so popular. (You could also just go straight to the Vanguard platform and buy from there if it works out cheaper to do so.) Alternatively, you could open an account with a ‘robo adviser’ and invest directly in one of their portfolios, which are generally built under the same principles - spreading your money across the stock market for reliable returns. In your quest for more information, focus on words like ‘diversified’, ’passive’, ’index’ and ‘tracker’.
When you become an investor you get some good tax incentives from the government. They don’t want you to be a drain on the welfare state in later life, so they’re keen to help you take financial responsibility for your own health and wellbeing. Fair enough. Everyone wins.
When you put money into a pension, the government tops it up with the income tax you’ve paid on the amount you’re investing. If your salary is £30,000 a year you pay 20% tax (on earnings above £12,500). If you then want to put £1,000 into a pension pot, the government tax kitty will cover 20% of it. You pay in £800 and they pay in £200. If you put £8,000 into your pension, the government tops it up with £2,000 to make £10,000.
If you’re earning, say, £80,000 a year then you’re paying 40% tax on some of your income so you can claw that back into your pension. You could then put £6,000 into your pension and the government would add £4,000. Pay in £12,000 and the government adds £8,000.
Away from pensions, you can get other tax perks when you invest. There are various types of ISA (Individual Savings Account) and each has its own set of benefits. Some are particularly good for older investors with a large investment pot. A stocks & shares ISA can help you avoid paying capital gains tax on your investments. Some ISAs are designed to help younger investors and those looking to buy a property. They might also come with government top-ups. Always explore your ISA options when you invest - you can normally have your portfolio ‘wrapped’ in the benefits of an ISA.
Once you’re invested, resist the temptation to tinker. Each time you sell and buy investments, or transfer them to a new service, you’re paying to do so - in trading fees, possibly exit fees, plus small marginal losses when you sell an investment and the same again when you buy a new one. All these granular charges can stack up and eat away at your profits. It’s one reason the active fund managers struggle to beat the market. Review your passive portfolio annually, or if your life circumstances materially change, but otherwise ‘set and forget’.
The moral of the tale
The moral of the tale
Investing provokes some interesting ethical and philosophical questions.
Are you happy to have your money invested in oil companies? Or in farming companies? What if you found your money was invested indirectly in machinery that carried out fracking? Or research into nuclear weapons? What if you were invested in a business that forced its factory staff in Asia to work 70 hours a week for peanuts?
It’s often quite hard to truly know where your money is flowing and what it’s influencing. Companies contract and sub-contract a string of other firms for niche, peculiar services you may never imagine even exist. We can’t possibly know how legitimate and moralistic this entire chain is.
Pressure has grown globally for a higher level of ethical manufacturing and trading, and for businesses to provide greater disclosure. In parallel, there is now also a blossoming fanbase for ethical investments, where your money goes into businesses rated highly against ESG (environmental, social and governance) standards. They might not make you any more money - and might make you distinctly less - but they may better fit your life Values. We are often ethically-aware with our spending, and we would think very carefully about the morals of a company we’re going to work for, so it makes sense we give the same complete evaluation to our investment choices.
I have often wrestled with the conflicts of investing at all. I know I am putting money into a system that is at the tough end of capitalism, consumerism and greed - all things I dislike about the economic framework that binds us.
My investments might, indirectly and unknown to me, be somehow associated with tax dodgers, sweat-shop manufacturers or various other malpractices. Even aside from that (since I have no knowledge of it) is it wrong to make money from an aggressively commercial world if your belief system tends to sit in opposition to it?
I have for the most part, though not completely, made peace with this struggle. In much the same way as I can’t easily escape the economic framework of ‘government - business - banking’ in which we all live, I can make my own decisions within it. I can only effect what I can effect. To that end, while I invest in the stock market and make money from doing so, I choose to use that money in a way that befits my personal principles and Values - spending intentionally, giving a certain amount to the people and charities I most treasure and buying things in a way that I see as being morally right.
Meanwhile, there are new movements bringing social justice to the fore of the investment industry. I hope and believe we will see considerable momentum around this in the coming decades, so the combination of investing and ethics becomes an opportunity, not a moral dilemma.
The worlds of investing and politics have always been closely correlated. As an election looms and one party moves ahead in the polls, the financial markets will adjust. Investors and the media like to speculate on the outcomes: Which industries, currencies or regions might benefit from a left-wing government or a right-wing government? What will it mean for income tax, or business grants? Will economic growth explode or be curtailed? Who wins and who loses?
We frequently find the build-up to a major political event, like an election, or Brexit, is far noisier than the aftermath. It is, in my view, generally pointless trying to second-guess the stock market ramifications. Blank out the hysteria and focus on more important things - yourself.
Once you’re in a good place - your Values clearly identified, your Money Plan executing your Life Story and your portfolio magically whirring away - forgetting about money is just as important as making it, spending it and investing it.
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