Three rants and a story

First, the story

I was talking to someone recently who’s just sold his business and its premises. He’s now got a lot of money and needs to decide what to do with it.

Being an entrepreneurial type, he is bursting with ideas. He’s rushing around, speaking to all his friends to ask them what they think he should do.

Also, he thinks investing should be exciting – this means he’s attracted to the idea of checking the markets every morning, actively moving his money about and ultimately, beating the market.

However, as you well know (if you’ve been reading my other articles), active investing doesn’t work as well as passive investing.

Rant 1: Investing is supposed to be dull

I understand why people need excitement in their life, but investing is supposed to be dull. I think you should get your excitement somewhere else and let the market do the work for you.

I’ve been going on about the myth of active investing in many of my articles. If you still don’t believe me, you might like to read The Little Book of Commonsense Investing by John C Bogle, investor and founder of the Vanguard Group. It’s the bible of index investing.

He starts his introduction: “Don’t Allow a Winner’s Game to Become a Loser’s Game”, and goes on to say: “Index funds make up for their short-term lack of excitement by their truly exciting long-term productivity”.

In short, it says that, if you leave your investments alone for long enough, the miracle of compounding will ensure they grow. So set them up, ignore them, and get your excitement in other ways.

Rant 2: Diversification. What it really means

Are you diversifying if you employ different Wealth Managers?

No. Not in my opinion.

You’ll get better results if you trust one planner with all your investments, and let them choose a diverse range of funds, asset classes and geographies for you. That’s because one big sum in one diversified plan is likely to generate bigger rewards than smaller sums in various small plans which are very likely to overlap.

This links to our article: Should I hire a financial planner or DIY?

Rant 3: Ignore the media

The media seems to be designed to generate short-term hype, sometimes even panic.

For example, there were lots of predictions about what would change in the recent Budget. Guess what. Nothing much did. Here are three of the non-events.

  1. Once again, there was talk of tax relief on pensions and the lifetime allowance being a ‘tax on wealth’. If I had a penny every time someone asked me about that, I’d have an awful lot of pennies! Once again, nothing happened. Pensions have been kicked around so much and been through so many changes recently that perhaps policy-makers have decided to leave them alone for a while.
  2. The mooted removal of business relief on IHT didn’t happen either. The media might argue that tax relief like this is the domain of the rich. But I suspect the Government realised that it’s best not to tinker with investment in startups, especially at a time when the economy might be shaky. That would be my argument – they need to encourage money back into circulation.
  3. All allowances were frozen (with delayed time-bombs lobbed in). For now, nothing really happened.

As I often say, it’s best to ignore the news and get back to what you can control.

Name: Lance Baron

Certified Financial Planner (CFP) based in East Sussex, UK. We support people in Southeast England with more than £500K to invest by building a financial plan that will help them live the life they want… until age 100