Sticking your head in the sand is not an option

The Woodford debacle has made many people who are already nervous of the stockmarkets think that investing is not worth it. But most of us need to provide for our own financial future. And investing is the beast way to do that.

By John Stepek

Published 17 October 2019 In Features

Neil Woodford &copy; Shutterstock — Neil Woodford: all over bar the shouting

With the collapse this week of Woodford Investment Management, the fall from grace of the man once fted as Britain's best fund manager is pretty much over, bar the shouting. I look at the fallout in more detail in this week's magazine, but what worries me (and lots of other financial writers) right now is that people will take the wrong lesson from the Woodford debacle.

It might be tempting to throw up your hands and conclude as many of the celebrities interviewed in the newspaper money sections appear to that stockmarkets are one big gamble, and that you can't go wrong with bricks and mortar. Unfortunately, sticking your head in the sand is not an option. These days, most of us have to provide for our own financial future (rather than relying on our employers or the government to provide a predictable level of income when we retire). And in these landlord-hostile days, a portfolio of properties alone won't cut it.

The good news is that investing is a lot less complicated than it's often made to look. For most of us, the goal is to accumulate sufficient savings to see us through a decent period of retirement in comfort. Assuming this is still a few decades away, it makes sense to invest in a diversified portfolio containing assets such as equities (plus some bonds, and a bit of gold). Why? Because although the price of equities and other assets goes up and down like a yo-yo in the short term, over a period of ten to 20 years, history shows that you're almost certain to make a better return than you would by holding cash (the value of which tends to get inflated away).

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You can achieve this without doing anything clever at all. All you need to do is to invest in a few cheap funds that track markets (rather than try to beat them) and then save regularly. You should see that as your baseline. If you then want to entrust your money to an active manager, in the hope that you can beat the return you'd get on a passive portfolio, then you need to be willing to do a lot more work while few fail as spectacularly as Woodford, most don't manage to beat the market.