personal investment blog

Take responsibility

Rule 1: Take responsibility for your finances

He gets up in the morning and he goes to work at nine and he comes back home at five-thirty, gets the same train every time…

Most of the people I know will accept that a version of this life (as described by the Kinks) is a rational economic deal that is acceptable to a well-respected man or woman in return for an income that provides the essentials of life and some well-deserved extras. Those having been consumed, there is supposed to be something left over for saving.

And he plays at stocks and shares and he goes to the regatta and he adores the girl next door, cause he’s trying to get at her…

Many people used to play at stocks and shares, especially before insider dealing became illegal, and generally, I believe, did so without much success. Then an investment industry began, based on the idea that, in return for a fee, a professional investor would relieve you of the burden of having to look after your own savings. All too often, the professional investor has merited the description “professional” only in as far as he charges for his services. The assumption that “professional” implies a degree of investment expertise is a marketing play that financial services vendors have used to the utmost, supported by a small but active spin-off industry of purveyors of grand but largely incomprehensible qualifications.

If you hand over your life savings, whether in one go or in monthly instalments, to a professional investor, there is a material probability that you will be disappointed by the outcome but absolute certainty that, regardless of the outcome, you will pay fees. Yet most people do so with minimum due diligence. On the face of it, this is highly irrational behaviour.

Here is a theoretical example. Someone works for 40 years. At 250 days a year, that’s 10,000 days. Over the course of their career, they devote 10% of their income to savings, heavily back-end weighted (i.e. at the start of their career they save nothing, at the end much). In terms of time worked it probably amounts to only c.5%. Yet 5% of 10,000 days is 500, all of which include the stress and expense of commuting plus any other unwanted side-effects of work such as health issues.

Most people would be quite annoyed if the financial rewards of a single day of work were explicitly wasted in front of their eyes. Being ripped off in shops or restaurants or on the railways or finding that holiday accommodation is sub-standard can produce a surge of righteous anger in most of us. Contrast this with the attitude commonly found in victims of poor investment performance, which is sometimes cavalier and sometimes timorous but which can best be summed up as resignation.

Do you really want to resign from your own financial status? I will answer that. You don’t. The value to you of the money that you have earned should be equal, regardless of how it is deployed. You will never get back the time you spent at work and you will never get back the poor investments that you paid someone to make.

Take responsibility for your savings. Invest the effort. Compared to the amount of time and commitment that you spent earning the money, it will be trivial.

Rule 2: Understanding