Newsletter – September 2024

• Share Prices Falling? I Don’t Care!
• Really Stupid Question
• Tips for the Newby Investor
• Performance & Costs
• WTF (What’s the Fact?)

Share prices falling? I don’t care!
The prices of shares and bonds have been going down and up quite sharply in recent weeks as folk worry about inflation, employment, interest rates and economic growth.

I really don’t give a tinker’s cuss.

My portfolios are set up for the long-term. I’ve copied the research and analysis of 150 massive investment funds covering over £80 billion of investments. I’ve spread my investments across assets that mimic the overall view of those funds and their expensive and valuable research (which I never pay for!)

Also, I adjust to make sure my portfolios copy the model portfolio (“rebalance”) once a year (see this video on how I did that very recently).

I know that I’ve done everything I can for a long-term portfolio. The one thing I need to do now is forget about it until it’s time for the next annual rebalance.

Really Stupid Question
“Is now a good time to invest?” Banks and investment companies love producing articles, seminars and whatnot in which they put this question.

The answer is “yes”. It’s always “yes”. Now is always a good time to invest, especially if you keep drip-feeding your investments (referred to as “pound cost averaging”). By making regular payments into your investments, you’re reducing the effects of sharp ups and downs in the prices of shares and bonds. That’s a good thing.

Why do the big banks and investment companies ask that stupid question? Because it casts an false impression of integrity behind which, all they’re doing is setting you up to give them your investments so that they can overcharge you for awful returns (see “Part 2 – The Rip Off” of How to Invest Without Being Ripped Off).

Next time you see an article or seminar or anything along the lines of “Is now a good time to invest?”, see it for what it is.

Tips for the Newby Investor
I was speaking with someone who was pointed in my direction earlier this week. He’s had a rotten year that has left him with some inheritance money. Like so many people, he wanted some guidance on how to invest and protect that money.

Definitively speaking, you can’t truly “protect” money that you invest. But you can invest at a level of risk-opportunity that is right for you (see Taking the right amount of risk on my website).

The following are the principles I put across to him and I thought I’d share them in case they’re useful to you or someone you know who’s in a similar situation of having money to invest and not knowing where to begin:

1. Don’t invest in cryptocurrency. It’s a gamble in which you are fleeced by the company selling the cryptocurrency. You lose, they win. Don’t do it. You’ve worked too hard for that money.
2. Focus first on what you want to do with the money when you come to spend it, not on how you think you should invest it. If I ask you “What do you want to do with the money”, I mean, “do you want to pay for university fees, your pension, a holiday…”. I don’t mean, do you think you should invest in X, Y or Z. Knowing what you ultimately want to do with the money goes a long way to determining how best to invest it – again, see the Taking the right amount of risk section of the website.
3. Note that “risk” should really be referred to as “risk-opportunity balance”. You can’t completely avoid risk, nor should you want to. If there’s no risk, there’s no potential for return. What you have to do is gauge the correct balance of risk-opportunity that is right for your unique circumstances.
4. An ISA (Individual Savings Account) is an account in which you can buy a range of investments. The money you put into an ISA (up to £20,000 a year at the moment) has been taxed e.g., by your employer. Any money you make in the ISA through growth of investments or dividends CANNOT BE TAXED. Also, you can take as much money out of an ISA as you like whenever you like.
5. A SIPP (Self Invested Personal Pension) is another tax-efficient account in which you can invest. However, the money that goes into a SIPP is not yet taxed; if it has been taxed, then you get the amount of tax added into your SIPP (see “Part 6 – Tax Efficient Investing” of How to Invest Without Being Ripped Off). The taxman takes his cut when you withdraw money from the SIPP, and there are restrictions on when and how you withdraw money from a SIPP.
6. An index fund, such as the S&P 500, can be included in a SIPP or an ISA. Think of a SIPP or an ISA as shopping baskets. Until you buy investments, the basket is empty. The SIPP or ISA is not an investment in itself, it’s just a tax-efficient account through which you can buy investments.
7. Don’t rely on your friends as the sole source of your investment advice. A little knowledge can be a dangerous thing.

Performance & Costs
My portfolio to date: +17.60% gross, +15.48% net (after costs).
Industry average (3,999 firms across 2023) +2.82% gross.

WTF (What’s the Fact?)
A few years back, I wrote a daily market update for the entire staff of a very well-known financial institution. That’s where the “WTF (What’s the Fact?)” originated.

I’ve just rediscovered the “best-of” calendar that I did to raise money for charity. I hereby quote the entry for April 2019:

UNDERWATER MORTGAGE
This is another example of financial folk tying themselves up in verbal knots in order to create a shroud of mystique. It just means negative equity.

UNDERWITHHOLDING
This one is more forgivable. It’s where insufficient money has been held from, say, salaries in order to pay taxes on earnings.

UNDERPANTS
These are security instruments implemented in order to facilitate a balanced distribution of assets.