Investment is a serious business (even though I like to talk about it in a lighthearted way). But life shouldn’t be all work and no play, so this article builds the case for a fun portfolio.
A percentage of the British population seems to be inherently mischievous. For example, you’ll remember when there was a poll to name a scientific research ship, the winning name was Boaty McBoatFace 🙂
We humans are not unfeeling robots. We experience a whole range of emotions. We generally don’t like being bored. We like feeling excited.
Rather than reading dry, dull, considered financial reports, the thrill-seeking video-gaming generation seems to prefer getting hot tips from social media. That’s what happened earlier this year.
Gamestop is the world’s largest video game retailer. In early January, their shares were trading at $20 and falling. Hedge funds started to sell short – that means they borrowed shares and sold them immediately in the hope of buying them back cheaper later, then returning the borrowed shares and profiting from the difference.
However, retail traders on Reddit and other social media platforms decided to have some fun and attempt to ‘defund’ the hedgies. This rampant speculation was a big gamble. But, with a bit of bravado, the market got excited and it threw the price up. In fact, the traders bought so many shares between them that the Gamestop price soared to $483 on 28 January. It subsequently fell to $48, so many of those who piled in lost money. But they had fun.
Some commentators responded: “Oh Gosh, the investment world is changing!”
Oh no it isn’t.
There is a big difference between speculation and investment. Guessing which company will do best is a game. Investment is buying and holding a safely diversified portfolio, and riding out the volatility.
Markets go up and down (that’s what they always do). And people are still happily diving in to invest. Here’s some recent evidence:
- The FTSE100 index is currently trading 40% higher than the low it hit in March last year
- Interactive Investor reported 370% increase in new accounts this January compared with 12 months earlier
- In February 2021, Hargreaves Lansdown said investment assets were up 16% on February 2020, totalling £121 billion
As we always say, wait long enough and the market WILL rise.
Willpower is fleeting
Knowing the right thing to do and actually doing it are two different things.
For example, we know certain things aren’t good for us, but we do them anyway. A sneaky cigarette behind the bike shed. A cheeky Nando’s for lunch. One too many wind-down G&Ts on a Friday night…
Tapping into this natural human tendency and allowing a fun element in your portfolio will feed this need without being too unhealthy.
What this means to you
When it comes to investment, our emotions can help or hinder us. For example, we might feel panic when the markets drop, and delight when they rise. Those feelings might influence our behaviour and tempt us to buy or sell at the wrong time.
As a financial planner, part of my role is to help clients manage their emotions rationally, and to help them make good choices.
As long as the majority of your portfolio follows a sensible plan (that means long-term, diversified and low-cost), we could allocate a small percentage of your portfolio into ‘fun’.
That way, you can test your investment ability, choose risky stocks, or play with market timing if you want. Then, by allowing you to ‘scratch that itch’, you are likely to feel happier to leave the rest of your portfolio alone.
For more information, please reply to this email or give Lance Baron a call on 01435 863787.