In my early career, I worked in the legal profession as a conveyancing executive. I dealt with mortgages, leases and property transactions. The language used in many of the documents was archaic and included such things as fee simple, easements and restrictive covenants. Of course, the legal profession has a vested interest in continuing to use these terms - language which can only be understood by the so called ‘experts’. The layman or woman will find it very difficult to feel confident dealing with such ‘complex’ issues.
I believe it is a similar story in the world of financial services. There are many millions of column inches written in the financial media to persuade people about this or that approach to successful investing. We have absolute returns - how to master alpha - this ratio - that out-performance etc. etc. One aspect of this jargon is to add layers of complexification (is this a word?) which can only be understood and unlocked by the financial professional. It is designed to confuse and intimidate the average person.
In my experience, investing does not need to be complicated. A pension is a long term savings plan - an ISA is a tax wrapper to keep your savings and investments out of reach of the taxman. If you pay a lot in charges for your investments you won’t end up as well off in 20 years than if you paid lower charges. This is not rocket science. You need to know a few of the basics well - the other 95% of what you come across in the financial media may be of passing interest but is generally not really necessary to make a success of diy investing.
To take the analogy of driving a car - you take a few lessons to learn the basics but you don’t need to understand how the internal combustion engine works to get from A to B. The more journeys you make, the more relaxed and confident you become in your ability to drive the car.
Just a mile up the road from where I used to live is a house with a blue plaque on the wall - its the birth place of legendary WW2 Spitfire designer, Reg Mitchell. He once said
“If anybody ever tells you anything about an aeroplane which is so bloody complicated you can’t understand it, take it from me - it’s all balls.” I think he too would have been an egg & chips investor.
So what are these basics?
My Five Basics
1. Investment should be all about the long term - preferably 10 or more years. Be patient - get rich slowly.
2. Understand that markets and share prices rise and fall - sometimes quite dramatically. If you focus on these ups and downs on a regular basis, investing will at times be quite an emotional rollercoaster ride.
3. Keeping costs to the absolute minimum is important if you are to achieve a decent return on investments. Beware of over-trading - long term buy & hold should be the aim.
4. Start early and invest regularly - reinvest dividends. Understand the effect of compound returns over many years.
5. Choose the right mix of assets such as equities, bonds and property which suits your temperament and which can withstand volatile markets and keep you in the game over the long term.
These are some of the key elements of investing which will help most investors to get a better return.
In the next few instalments, I will look at each of these basics in a little more detail.
In the meantime, why not leave a message and say what investment approach works for you.
Remember, slow & steady steps…