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.
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.
That's not to say that taking a more active approach is futile. Markets are not as efficient as they are cracked up to be, which means it is often possible to find areas that are unjustifiably cheap. Looking through the magazine this week, it strikes me that one great irony of Woodford's downfall is that equity income once his speciality looks pretty attractive right now.
The former "bond king" Bill Gross reckons that high-yielding, steady dividend payers are the place to be in a low interest-rate world. The UK is replete with big dividend-payers, as investors shun Britain over Brexit fears. And it's not just Britain there are chunky dividends available in eastern Europe right now, too. Maybe if Woodford had stuck to his knitting, he could be entering another golden period right now. As it is, he's just yet another financial scandal story to be cited the next time someone is fretting about why British people are more interested in buying houses than investing in stocks.
And if you're looking for an educational day out and the chance to speak to me, Merryn, and a raft of investment experts in person, then don't miss the MoneyWeek Wealth Summit in London, on 22 November. Get the agenda and book your ticket at moneyweekwealthsummit.co.uk.
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John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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