On the Money: Alan Steel
I am so old that when I started as an independent financial adviser back in January 1973, the Dead Sea was just seriously ill and Long John Silver had two legs and an egg on his shoulder. Interest rates were so far into double figures they suffered from vertigo so investors didn’t need to worry about their interest returns being taxed. Nor did they pay any attention to inflation which, however, was soon to become their public enemy number one, exploding to a scary 26% in less than three years. In real terms that rate would halve their savings in only 3 years. Ouch!
Longer term investors were attracted to With Profit endowment policies that they stuck with for up to 45 years, would you believe? Yes, really. I remember calculating their early encashments when I worked 50 years ago in one of the well-known Scottish assurance businesses that flourished in Edinburgh’s St Andrew Square, and then vanished just like their “terminal bonuses”.
Because it was felt that policyholder wimps were letting the side down by giving up too soon, actuarial sadists were instructed to penalise them with rip-off values known officially as “surrender values”. It’s fair to say that there were investment and unit trusts around back then too, but for the vast bulk of savers, deposit accounts and long term with-profits policies were the only games in town.
Then in 1971, three South Africans led by Mark Weinberg, set up a unit linked insurance company in conjunction with Hambros Bank, “finally making unit-linking respectable”, according to a headline at the time. Suddenly the game changed.
Alongside that change, as inflation headed consistently into double figures and tax laws kept changing encouraging continual “creative design” of savings plans, a raft of alternatives appeared which further confused investors. And in this Wild West environment of ever-changing confusing alternatives, and no sheriffs around, along came loads of scams. Who remembers Nation Life, Signal Life or Barlow Clowes, to name but three?
Promises, in an unregulated investment sector quickly became broken promises, and this was the norm until eventually in 1986/7 regulation was introduced in the UK in an attempt to stop the baddies conning us.
Alas, it has failed miserably. Today, thanks to the internet, 24/7 reporting, and unrestricted websites and blogs breeding faster than rabbits on Viagra, today’s investors are far more exposed to scams than ever. As you can see in increasing reports in financial pages.
Now I’m not a perfect investor myself, by any means. Long ago, before I knew there was such a thing as savings, my grannie used to say that no matter how hard you try in life you’ll never get it perfect, but never to forget to keep trying. And not to focus on what you get wrong, but to “learn from it and just get on with it”.
She also said “If you can restrict your failures to one in ten, you’ll do really well in life”. That advice has stuck with me all these years (she died 50 years ago). OK, I could have another 10% more savings today had I not made errors, but if I had given up because of the errors I’ve made in the last 25 years I’d have much less than half of what I still have today.
I recently came across a list of seven traits of the worst investors in a post by US investor Ben Carlson. And given there’s not a week that goes by without yet another sad story of innocent savers falling for scams, losing investments or pension funds in the process, and given my experience over the years I thought I’d share them with you and add a few of my own thoughts.
Ben’s list of worst investment practice:
Looking to get rich in a hurry
Not having a plan in place
Going with the herd instead of thinking for yourself
Focusing exclusively on the short term
Focusing only on those areas completely out of your control
Taking the markets personally
Not admitting your limitations.
Here are some thoughts from me:
If typical interest rates are around 1% then any offer well above that is really high risk.
Don’t invest in anything where the risks are written in small print you have difficulty reading.
If someone phones you with a financial offer of any description put the phone down.
Be suspicious when headlines announce that “most investors” are “buying this or selling that”
If you do what everybody else is doing you’ll end up like everybody else. With not enough.
Don’t beat yourself up when you get the odd investment wrong. Learn from it.
Don’t put your eggs in the one basket. And if you do, don’t attempt to go through a revolving door.
Concentrate on what you’re getting right.
Talk to an adviser who friends have been with for years. At the very least they’ll help you avoid scams.
Alan Steel is chairman of Alan Steel Asset Management
Alan Steel Asset Management is regulated by the Financial Conduct Authority. This article contains the personal views of Alan Steel and should not be construed as advice. Do check your individual circumstances with your advisers.