970 BOTTLES OF BEER ON THE WALL

TODAY’S BLOG

970 BOTTLES OF BEER ON THE WALL…

I’ve been trying to think of ways to explain the benefit of long-term investing. I’m not a big beer drinker, but given that when I do go to a pub, I’m always shocked at how much a pint of beer is. According to the ONS, the average pint of beer in the UK was £3.67 in January this year. Clearly a national average, because that wouldn’t buy much in London.

30 Years Ago… 1989

Anyway, let’s suppose I am someone that likes to buy the occasional pint of beer. As I get older, like most people I tend to remember elements of the past fondly. Particularly this time of year as students return to University. 30 years ago, perhaps you were at University or had long since left. 1989 – the time when Nigel Lawson was replaced as Chancellor by John Major. Simply Red had a hit album “A New Flame”; Challenge Anneka had aired for the first time and Nick Faldo won the Open. A pint of beer back then was £1.03.

YOUR ANXIETY

Let’s suppose you had £1000 you wanted to do something with. The memory of Michael Fish and the great storm closely followed by Black Monday was fairly fresh in your memory. You didn’t fancy the stock market. So you found a decent deposit account, rates were high causing problems for borrowers but great for savers at 14%.

Thirty years later that £1000 had risen to £2,080 by January this year. You had forgotten about it except for when you sighed with relief as economic recessions came, Y2K, Dotcom bubble, Korean crisis, 9/11, credit crunch – you had avoided them all.

Yet there is a problem. In 1989 your £1000 would have bought a 30-year younger you 970 pints of beer. Today your £2,080 would only stretch to 566 pints.

Your Uni Friend John had a PEP

Your good friend John from University had put his money into the UK stock market, he put £1,000 into a Personal Equity Plan, some quirky idea brought in by Nigel Lawson. He bought a FTSE100 tracker fund (ok, maybe not, but stay with me). He had to live with the same economic stresses and saw the topsy turvy workings of the stock market. However, at the end of 30 years his £1000 was worth £11,494. He hadn’t touched it (neither had his adviser) and so all dividends were reinvested. This sort of money enables John to buy 3,131 pints of beer. That’s 5 times more than your 556 pints.

Julia also had a PEP

John is fairly happy, but his girlfriend Julia at the time also put £1,000 into a PEP, but she put it all into the FTSE250 tracker. She figured that slightly smaller companies might do a bit better than bigger ones. Lo and behold, Julia’s £1,000 has turned into £20,818. Julia can buy 5,672 pints of beer, that’s ten times (10x) TEN TIMES as much as your 556 pints.

OK – Smallprint (or not) Caveat Emptor…

Admittedly I have taken some liberties with costs, charges and the available funds in 1989. The biggest liberty I really took was suggesting that people leave their money alone. They/we don’t. We all tend to fiddle around, attempting to find a slightly or perhaps considerably “better” option.

Long story short, when considering investment for decades, what on earth does “risk” really mean? The risk of the power of the money in your pocket being worth less (or worthless) due to rising prices? The risk of seeing your money stagnate in cash? The risk of seeing the value of investments rise then fall?

Monsters grow

What ought to be blindingly clear…. don’t let your anxiety dictate your financial planning and investment strategy. It is a dreadful guide to future performance. The monster at your door is inflation, however small it seems today, feed it for 30 years and it’s still hungry and likely to eat you alive.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk
Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY | DATA PROTECTION

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY | DATA PROTECTION

The Fuss About Platforms

Solomons-financial-advisor-wimbledon-blogger

Head Over Heels [81] – the fuss about platforms

You may have come across news in various papers (The Telegraph for example) about some investment platforms being costly and offering inducements to advisers to use them. I couldn’t miss the opportunity of commenting about this.

A platform is basically an online administration service. This enables your investments to be traded, bought, sold and rebalanced. Some enable you to hold all sorts of investments, others are more restricted to mainstream funds. The platform has legal responsibilities in delivering its service and providing statements, contract notes and so on. Every financial adviser that decides to use a platform on which to hold your investments, must justify why it is selected.

Money, Money, Money [76]

Some people will always see price as the first hurdle, if one platform is much like any other. Some charge a fixed fee, most charge a percentage. Most have a sliding scale, so that the more you have “on the platform” you begin to have charges reduced through a tiered charging system. However, this is your money, not a takeout meal. Reliability is crucial.

Ring, Ring..[73]

You can have a platform with rather more “bells and whistles” but invariably, this comes with additional costs. The ability to hold investment property within a pension, shares and so on, all have various additional costs. Some also charge for each type of “wrapper” which is really a charge for a product – a SIPP, Flexible Drawdown Pension, ISA etc.

Naturally these costs all begin to add up and a valid question is really whether you would make use of all the “bells and whistles”. Many will not, but some certainly will. So, selection of a platform ought to suit you more than your adviser. One of the main advantages of any platform is the saved aggravation in attempting to deal with different companies or constructing a portfolio of funds from very different investment groups. I cannot repeat what I think of some providers but let’s just say that they give the impression that they have only just come across a fax machine.

Move On [77]

One of the age-old problems of financial services is inertia. Many will stick with what they know, despite the reality that there are better alternatives. The hassle with all those forms can seem overwhelming. In addition, any adviser that guarantees that moving from A to B will be better, is delusional, the new arrangement may be considerably, better, cheaper, faster etc, but it is not possible to guarantee a better outcome. In the same way that I cannot guarantee that I will rise from my bed tomorrow, I should, but I may not.

The temptation for clients and advisers is to believe the marketing. In addition, advisers may receive helpful bits of kit to enable them to do a better job. This then begins to blindside and erode impartiality.

Knowing Me, Knowing You..[76]

So, what do we do at Solomons? Well we pay for all the tools we use so that we can deliver the service we want. These evolve. This year I have started to use at least 3 new different tools. I’m aware of bias and so we get an independent company to research and assess platforms for us. We do not influence the research or results. We provide details about who we currently use and an overview of the sort of clients and their holdings that we have. We do this once a year.

Most of our clients do not need all the bells and whistles, so we use platforms that suit their requirements. There are lots of unused funds, but that’s not the same thing. If I want to buy a suit I go to a shop that sells suits, I don’t by them all, some would be too small (most) and some too large, wrong style, colour and so on. That does not mean I am paying for the other suits, merely going to somewhere to obtain what I want.

Another Town, Another Train [73]

If there are good reasons to change your platform, we will advise you to do so. There will not be any new costs because we treat this as a part of the annual fees that we charge for your investments on a platform. All the platforms we have selected to date do not apply exit charges, unlike Waterloo [74]. This was done deliberately.

Cheapest is not best. Back to the suit buying… (surely you bright folk get it) price is one element of the purchase. Does it do the job? Well, when it comes to technology, sadly, all too often platforms break, which is more than a minor irritant when attempting to comply with regulations, designed to protect investors, albeit often with utterly daft realities.

The Winner Takes It All [80]

Good platforms are about two things – sustainability and innovation. The price differential between good platforms is nothing like as significant as these two. Is their business model sustainable? Most platforms do not make a profit, which to put it bluntly means that something must change. That’s just The Name of The Game [77]. Those that do not innovate will eventually be left behind, and when your business is essentially a technology solution, that is a bad business plan.

In summary, we do not use platforms because of the tools they provide, or any other incentives. We will move you from one platform to another if there is good reason to do so. All platforms that we have advised, do not apply exit charges. We tend to only use platforms where the bells and whistles come at no extra cost or are not charged if not used. We like innovation but above all, the business model of the platform needs to be robust.

When All is Said and Done [79], we look after our clients for decades, not months or a couple of years, but On and On and On [80]. Decades. So there seems to me to be no point in ripping anyone off. What goes around comes around and all that…. and with the idea of A to B, platforms and things coming around again, its all about money, money, money… so here’s the trailer for Mamma Mia 2.

Dominic Thomas
Solomons IFA

Email me to get in touch