Smash the System

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.


19 thoughts on “Smash the System

  1. Hit the nail on the head! I also started with TMF but it was the F/RE blogs (and maybe my age) that really got me going. I only wish I had been a little younger to be able to take more advantage *sigh*
    Anyway I’ve pointed my son at these blogs – he’s in his 20s so isn’t that interested but is taking steps in the right direction so hopefully his interest will grow.
    I also tell friends/acquaintances who express any interest – but I have to say most revert to the norm…
    I’m from a similar background – Scottish comprehensive system, working class family – and the fact that we’re discussing this is a great example of the utility of the Internet?


    • I’m very similar, my son is in his twenties too and I have told him to check out ERE and MMMM but, if he does, he hasn’t told me! Mind you, in my twenties, was I interested in finance? It could well have been the last thing on my mind.


  2. Well I’ve got my own focus group for these matters which are my brothers and sisters in law, all london types.
    They’re all 100% exposed to london residential property, pretty much nothing else. All got BTL and a primary residence. I’ve asked them their thoughts on diversifying away from that but they can’t because as they freely admit, they don’t know how to. Thats the bottom line – they just don’t know anything other than property, so thats all they do.
    To be fair, one has started a private pension with an IFA, but he doesn’t know whats in it and he doesn’t know how much its costing him.
    Its impossible to engage with these guys on any subject other than property when it comes to finance. It would be like me talking to you about alternative keyboard layouts or the nuances of cold showers – you wouldn’t want to or even be able to get a foothold 😉
    I think you have to be careful; off the back of several years immersed in learning about personal finance, its easy to forget how far you’ve come, and the knowledge level of those that haven’t done the equivalent learning (its very, very, very low)

    On the 80% is that by £ or # of accounts? If its the former its absolutely crazy, the latter may not actually be that bad if those accounts don’t contain many £


    • Hi Rhino, I think it was by number of accounts. You make a good point about forgetting how far you’ve come over the years. I just assume everyone – that’s everyone – has heard of Index Trackers, and that they’ve just not got around to opening one. So when I read a stat like that quoted in the Sunday Times, my jaw hits the keyboard.


  3. Similar background, similar far flung provincial origins. I must have spent a week’s worth of hours trying to explain to lovely girlfriends from the home counties that not everybody grows up among lawyers, newspaper editors, investment bankers, and European heads of this and that.

    At least in the old days you got some influx cheeky trader East End types working their way up in the City but that door has largely closed now in the quant or slick salesman era.

    But that’s social mobility rather than self-education, really. I know my site’s articles are a wordy mouthful, but at least averagely smart people from anywhere in the UK should be able to read and learn from them. Same goes for several other UK sites, of course. I think there’s a bit of laziness in it to be honest.


    • well to put a more context on the bones of my last comment, we’re talking a whitehall lawyer, a charity CEO, a mgt consultant and a media director. So all prob what you would call of average intelligence.
      Now they would know vaguely what shares were, but they wouldn’t know what a bond or a gilt was. Not one of them holds a stocks and shares ISA. They do know how to file tax returns, but only because they have to declare their BTL income.. most of them delegate it to an accountant though

      So if you tried to talk asset allocation, inflation adjusted returns, ITs, ETFs, OEICs you would just draw a blank stare. None of it would register. None of them could name a broker/platform, they could all obviously name a bunch of banks.. and thats about the strength of it. I think they’re pretty representative.


    • At my school, the height of aspiration was to be a doctor. We also knew about lawyers from the TV. For girls, a career in nursing was about peak ambition as opposed to working in a factory. That’s how I remember it anyway, and I remember this changing in the Eighties too, as we began to learn about the Yuppies in London driving Porches. Ah, those young, innocent days!


      • Haha. I remember the careers adviser at school had a computer based questionnaire that would process your responses and return a suitable career as a result. There was some sort of bug in it and every one came out as tree surgeon. Careers adviser seemed fine with the situation. Great days 😀


      • @ The Rhino.

        Dear God! In 1972 the career chosen for me by whatever system they were using was forestry. How long did that bug last?


  4. I think most people are risk averse and extremely not rational. That’s why people won’t get involved in the stock market. They see the stories about people losing money and decide to sit out, and then see stories about people winning the lottery and decide to put their money into that instead. People are so sure that the extraordinary event will happen to them.


    • You’re so right. We play the lottery every week because, of course, we are sure we will win big at some point. I refuse to think how much I’ve put in over the years and tell myself that if I don’t play then I’ll never win. That is a certainty, whereas not winning the jackpot isn’t. It could be me, and I have this sneaking suspicion that it will be.


  5. Yep, Scottish comp and agree, the fire blogs are great. Aiming to FIRE, next summer aged 56 , wife 50 ,all going well. Wish I had started earlier, started in1999 so been through a few down and ups but have stuck at it. Not a millionaire at all, but with investments and public service pensions we as a couple will be on about 40k per year. Plus final salary lump of 100k to come and state pension down the line. Plenty for us as we have had an annual savings rate of 70% for the last 5 years since mortgage paid off. Most investments now in income generating ITs plus some LS 20 and 60%.
    All in SIPPS to cover the gap to 60 ( thanks simple living in suffolk for your article on this), plus ISAS and cash.
    Really enjoy your blog.


  6. There is something emotional about houses and I think that is why people can’t look beyond houses as investments. After all, stocks and shares and markets are just ‘numbers and that’ – it’s just gambling, in the view of Joe Public. That’s why we have TV shows like ‘Location, Location, Location’ that, for some perverse reason, are considered entertainment. ‘Who wants to be an S&S ISA millionaire?’ wouldn’t quite catch on.

    It doesn’t help that Martin Lewis, and others like him, never quite get beyond cash savings, reclaiming money and shaving £5 off your gas bill.


  7. The Motley Fool UK Investment Guide was the book that opened my eyes and made me aware of the sharks in the water and the possibilities of investment. There is a need for a new version! It saved me from committing to a insurance linked investment scheme and set me on the right track.


  8. Never mind just having savings in cash ISAs, a couple of years back, I found out that my ex-boss (who was the Risk Director) didn’t have ANY savings/investments in ISAs because “he didn’t understand them”! This was a guy who had a mandate to sign off on £10 million deals!


    • That is worryingly hilarious weenie!
      I remember starting up an ISA when I was 18, and briefly reading about stocks and shares and being terrified by it, due to the whole you could lose thing. Still, interest rates are half decent back then and it could have been lucky I didn’t as that was 1999 so just before the dot com crash I think!

      It would be so interesting if I could go back and simulate my life with a few key decisions going the other way, and see if I got into investing at that age whether I’d be better off now or worse.


  9. Just a thought on the ISAs – wonder if that number includes Help to Buy ISAs? Of course they are only cash-flavoured, unlike the shiny new Lifetime ISAs, so that may skew your numbers somewhat. Still, the central point is solid – many many regular folks are scared stiff of “the stock market” and being one crash away from penury.


  10. I suspect the proportion of Cash ISAs to others (including Help-To-Buy and Lifetime ISAs as well as the Stocks-And-Shares variety) is due to whether people *could* save, rather than whether they *should* save in shares. Or property, for that matter.

    The Motley Fool and Martin Lewis, mentioned above, frequently give the sensible advice that before investing you *should* have a cash buffer saved up for unexpected expenses. However, just achieving that is a significant challenge for a large number of families before considering the next step of where their long term investments *should* be made, *in addition to* their Cash ISA savings.


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