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TCFP67: Lesson learned?

On 24 March 2000 the US S&P500 stockmarket index hit an all-time high of 1552. Then the dot com stockmarket boom turned to bust. On 16 April 2021, the S&P500 closed at 4185.

If you had invested at that historic peak in 2000 (i.e. the “worst” possible point) and stuck with it during the three subsequent “busts” (2001-2, 2007-9 and 2020) you would now be looking at gains of 170%.

If you had reinvested the dividends paid to you over the last 20+ years you are up around 300%.

If you had added to your investment each month for the last 20 years, then the sky is the limit. I am guessing you are up by 500% or more. That is a compound return of 10% pa. More than enough to get “the job”, “done”.

Sadly none of us got anything remotely like that sort of return, because:

  1. The cost of investing used to be exorbitant (Each new investment used to cost 5% (the bid/offer spread), then there were management fees of about 1.5% pa and then about 1% pa extra to cover commission costs).
  2. And that is before we get to the penalties or costs for switching products, providers and investments there used to be.
  3. As an UK investor you were probably 50%+ invested in the UK (the FTSE100 has not grown since December 1999 to today).
  4. The IFA you appointed and the investment manager they appointed for you probably compounded the problem by buying high and selling low, chasing performance, switching strategy and many other bad investment and planning decisions.

All of which cost you most of the returns on offer. If you kept up with inflation on average over the period, you probably did well.

But, in 2000, there were few viable alternatives. Crap, mis-manged, overpriced investments were all there was. The market was horribly inefficient and uncompetitive because:

  1. There were few passive / index tracking funds to allow you to bypass investment incompetence.
  2. The “perceived wisdom” was to have 50%+ invested in the UK.
  3. There were no online platforms driving down costs.
  4. The contract terms were appalling – just about any changes cost you.
  5. Information was scarce and private investors ill-informed.
  6. IFAs were (often) untrained commission jockeys interested only in the next sale.

Such WAS the sorry HISTORY of investing in the UK. But it has all changed, today you can:

  1. Access tens of thousands of investments from thousands of providers via numerous investment supermarkets.
  2. About half of all options are passive / index tracking.
  3. Costs have plummeted – there are no initial fees, and you can easily have a portfolio and product for 0.5% pa.
  4. Contract penalties and additional costs are a thing of the past.
  5. As are commissions – IFAs must not only disclose their fees, but they also must earn them too.
  6. And the internet has meant there is more information available today than there has probably been in all the centuries before combined.

Now there is no excuse to be stuck with high charges, penalties and poor behaviour. So why are we still shooting ourselves in the foot?

  1. Too few follow a “goals-plan-portfolio” strategy. Instead, they are wedded to the idea that only investment performance matters, not what the performance is for.
  2. Many still think they can beat the market consistently, a fool’s errand if ever there was one.
  3. Low-risk investors are encouraged to hold larger amounts in bonds, even though bond returns rarely beat inflation after all costs.
  4. And many UK investors continue to favour UK investments over the rest of the world.

Although many sensibly use passive / index tracking investments they overlay that decision with the very active decision to invest mainly in the UK. This makes no sense.

The US stock markets make up about 56% of the global stockmarket, the UK just 4%. But it is not uncommon to meet clients with 50%+ invested in the UK.

Why would you be overweight the UK by a factor of 10?

The aim of investing is long-term returns greater than inflation after all costs, i.e. to become wealthier. The stockmarket’s long-term returns obliterate inflation. The stockmarket is the only credible, long-term option.

All that needs to be done is invest in global stockmarkets in proportion to their size and let the “wisdom of crowds” do the rest. Millions of investors together will decide which countries, sectors and companies will be the winners and losers.

Why swim against the tide? Why interrupt or interfere with that process?

So much is so much better for UK private investors than it was – yet still we seem addicted to thinking we know more than the market does.

And that’s completely nuts. Have the last 21 years taught us nothing?



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