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Sure, have some rainy day savings. And definitely don’t invest in anything so risky you won’t sleep at night. And please try and avoid those too-good-to-be-true products that promise wonderful returns but are really just scandals in the making.
But, that aside, stop putting all your money in cash. Seriously.
Latest figures from HMRC show that savers were flocking to cash last tax year, with an eye-watering £67.5 billion poured into Cash Isas.
The base rate is 0.1% and the best easy access cash Isa pays 0.9%. Yes, Brexit and yes, market volatility, but this is no way to save for the future.
If you put £10,000 into a savings account paying 0.9%, after 25 years you will have £12,522. The same amount invested in the FTSE 100 over the past 25 years would have grown to almost £45,000 – even factoring in the recent falls.
For a long-term saver, cash makes no sense. And saving your children’s money into cash makes no sense. And saving your grandchildren’s money into cash makes no sense. You get the point.
The trouble is, the stock market is A Scary Place. The only time most people hear about it is when Something Terrible has happened and there are some unhelpful calculations about how much has been wiped off the value of the FTSE 100. Something needs to change. Because right now we’re at the start of a potentially very long recession and savings rates ain’t about to get any better. At the same time, house prices aren’t going down and the onus is increasingly being put on individuals to provide for themselves in retirement.
There is only one answer to that toxic cocktail of problems: invest. Tell everyone you know, because based on these latest HMRC figures, it seems like the message isn’t getting through.
Top Managers Can Get it Wrong
Should fund managers bet big? It’s a question that’s been on many investor’s minds this week after the Wirecard scandal reached breaking point.
Alexander Darwall, manager of the European Opportunities Trust (JEO), is perhaps the most well-known fund manager to have held a large stake in the business. Having first invested in the German payments provider 13 years ago, when shares were just €9, at one point he had 15% of his £800 million portfolio invested in the business. When Wirecard shares plunged last week, some 10% of his assets went with it.
It’s not good. Darwall’s trust tumbled 11.5% on the same day. Shouldn’t an experienced investor have seen it coming? Questions had been asked about Wirecard for months, if not years, and some investors had been betting against the company’s shares, expecting things to come to a head.
Should fund managers have such large portions of their portfolio exposed to a single stock? The trouble is, investors are all for it when it’s going well. Think Nick Train, Terry Smith, James Anderson. Their funds have done incredibly well on the high-conviction approach of their managers. It’s the reason their assets under management swell to such huge levels, because their success becomes known and investors seek them out.
But crucially, no high conviction fund manager I’ve ever spoken to has claimed they get it right 100% of the time. When they start making that declaration, that’s the time to run for the hills.
In the meantime, as long as they get it right more often than they get it wrong, then they’re probably doing OK. Darwall’s trust has delivered annualised returns of 14% over the past decade – it’s hard to make a case against that. As long as he has the contrition to recognise and learn from his mistake, I don’t think he should necessarily be hung out to dry over it.
Return to Sender
Royal Mail should’ve have been pretty perfectly placed to thrive over the past few months. In a world where deliveries to your doorstep have been the only way for many people to get anything, its parcels business has been booming – but it can’t keep up with the demand because of out-dated technology.
And this is the problem with not investing in improving your business when times are good (dare I bust out the old Government’s favourite phrase “making hay while the sun shines”?). So, it was a major blow for income investors this week when the firm announced plans to cut its dividend.
Investors were in a frenzy when Royal Mail (RMG) listed on the stock market in 2013 and shares went through the roof. They have not been well rewarded. When debt has tripled and profits have plunged 30% in a single year, the outlook doesn’t look great. When companies are outsourcing their parcel deliveries to those courier firms who lob packages over walls and onto roofs rather than to Royal Mail, you know things are bad.
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