As ever, I perused through the Money sections of the magazines over the weekend where they tend to throw out facts and information that, as a FIRE advocate, you feel should be on the front page of the main newspaper. Fascinating fact this week: over 80% of ISA’s held in the UK are held in cash accounts.
Isn’t that just gobsmacking? I mean, given current inflation, a lot of those “Savings” are effectively losing money. Why is it this way, when most of us who are piling our cash into stocks and shares saw our investments grow in mainstream index trackers by fifteen percent plus (probably) last year?
Is it fear? Are people frightened of losing money if they invest in stocks and shares? I’d like to think that this was the case – this would be an indication that people had at least thought about their savings choices, although they might not have looked into the detail. I’d like to bet if you ask most people about the stock market, however, the main thoughts they’ll have about it are the Great Crash of 1929, the Dot Com boom and bust, or whatever it was that happened in 2008 when Northern Rock almost collapsed, or something. And yes, those were scary stories which, we are told, we’re pretty much guaranteed to see the likes of again in our lifetime. “The value of stocks and shares can go up as well as down”, is a mantra that almost everybody can quote, the equivalent of “Here be dragons” on one of those old maps you see in the movies.
The Movies. They’ve probably got a bit to answer for too. “It’s a Wonderful Life”, “Trading Places”, “Wall Street”, just to name three that spring immediately to my mind that don’t paint a very flattering picture of the stock market. All of those, and probably several more like them, warn that the market isn’t really for people like us. Unless you know what you’re doing in Orange Juice or Pork Belly Futures, steer clear.
The same people who shun the markets because they don’t understand them are often the very same people who’ll happily tell you that investing in the housing market is a safer bet than investing into a pension. At least that’s what the regular “Minor Celebrity Answers 20 Questions on Money Matters” interview attests to in the Sunday Times. Week after week I read someone answering the question of whether to invest in “Property or Pension” by stating definitively “Property”. About one week in ten someone answers “Both” and anyone answering “Pension” is an even rarer occurrence than that.
There’s another factor in the UK that might be keeping people away from the markets, and that’s a subject particular to Britain that I’ve mentioned here before: Class. I was educated in a Scottish mainstream comprehensive and I can honestly say that the thought of entering a career in finance, aside from accountancy, never crossed my tiny mind. Stockbroking, Merchant Banking and Fund Management? I’d never heard of those careers and, if I had, I would have classified them in the same career choice option as I’d have put “Astronaut”. At least I could have named an astronaut. I knew nobody who knew anybody who worked in the City. I wouldn’t even have known that term. If I had, I might have been interested, but the whole subject was so far from our little world that it was never discussed. Or, if it was, it would have been in an Economics class, and who listened in those anyway? Stocks and shares just weren’t for “people like us”, it was as simple as that.
These days we’re supposed to be more of a meritocracy, and lads from a working class background can make a big deal in finance. Blokes like Nick Leeson and Fred Goodwin, for example, where we all learned about their humble origins immediately after they almost wrecked the system. I do wonder what the background to the high earners in the banks look like? How many simply have the right network and connections? How I snorted with derision when I read how the (excellent) author Michael Lewis (Liar’s Poker, The Big Short etc..) broke into a career in the City. He happened to attend a dinner in London where he spent the evening sitting next to the wife of a partner in Goldman Sachs (as you do). She wangled him an interview, no doubt charmed and convinced he was the “right sort”.
To continue on this theme, I recently read an interview with a City investment guru who recounted that old chestnut about knowing when to sell “when my plumber and taxi driver start giving me share tips”. If this happened in New York, you’d shrug and move on, but in London the story smacks of class division – oh yes, when the ignorant masses start dabbling in the markets, it really is time to sell up and head for Saint Kitts.
Fortunately when I hit my thirties I came across The Motley Fool UK Investment Guide which, for me, deconstructed and poked fun at a lot of this “It’s not for the likes of you” rubbish, and I never looked back. These days I hope that the growing popularity of some of the web based bloggers and investment platforms allows that opportunity for millions more.