How do I become investment literate?

[arguti]

stongle said:

In order to become investment literate, you need a minor grounding in macro-economics. Being able to understand the correlation between interest rate policy and asset prices is a must. Even a macro-economics for dummies book would be a start, then look at some of the FT publications.

Any advisor you see should have your interests foremost, but YOU need to understand your risk appetite and investment horizon in mind. This means looking at economics to determine a range of asset outcomes based on interactions between monetary, fiscal, policy, global events and credit (remember bonds are loans that need to be repaid,).

This is so important, understanding interest rates and I would add, understanding of currencies - especially now with Brexit, threat of North Korea, etc, etc.

For example, prior to Brexit, i did quite a bit of reading of likely currency and stock market implications of both a yes and no result and therefore positioned myself in (selected) shares with mostly dollar earnings and moved all cash from £ to Swiss Francs working on the assumption that if we voted to remain, the stockmarket would soar and if a leave vote came through, £ would crash and selected defensive dollar earning shares would soar - I made a fortune on Brexit day enabling us to move house a few years earlier than previously hoped for.

It helped tremendously growing up in South Africa with a depreciating currency where most people who were/are financial savvy are well used to working on the premise of an incompetent government and hedging one's bets accordingly. Currency risk is now a insignificant factor in all my investment decisions, more so now with Trump, etc with their fat fingers on the trigger.

i know many think Jim Rickards is a quack but reading his book on currency wars was interesting and was used as a resource to do some proper reading thereafter.

https://www.amazon.com/Currency-Wars-Making-Global...

[BanzaiMan]

arguti said:

stongle said:

In order to become investment literate, you need a minor grounding in macro-economics. Being able to understand the correlation between interest rate policy and asset prices is a must. Even a macro-economics for dummies book would be a start, then look at some of the FT publications.

Any advisor you see should have your interests foremost, but YOU need to understand your risk appetite and investment horizon in mind. This means looking at economics to determine a range of asset outcomes based on interactions between monetary, fiscal, policy, global events and credit (remember bonds are loans that need to be repaid,).

This is so important

Some would argue it is of no importance whatsoever, as a typical investor is very unlikely to be able to outsmart the voting machine that are the markets on a consistent basis, and therefore should just buy the markets and let them do their thing.

[Shnozz]

red_slr said:

Reading etc is all ok but you need to know your destination before you set off on the journey.

If you plan to retire at 50 the route to retirement will be different to someone who plans to retire at 60 for example.

That is a very, very good point in fact, previously overlooked. That is the starting point as your own desired journey will be entirely different from mine and from everyone else posting.

Work backward from what you want to achieve. Yes, what you may learn may influence how you build that road, but you need to know where its taking you first and how far away.

[anonymous-user]

IMO intelligent people with plenty of money need an IFA like a hole in the head. However, it does mean paying attention to the world around you and the guidance available on this PH Finance Forum. There are many people on here who have invested very successfully by following basic guidelines.

• Sell the mortgaged rental property
• Pack your pensions (his and hers) with maximum available tax relief
• Pack your ISAs (his and hers) with £20k p.a. each to maximise tax relief
• Make sure the pension and ISA contain stocks and shares investments, i.e. those which are likely to make the biggest gains.
• Invest other money as you consider appropriate
• Diversify
• Some people like to track the markets. I much prefer mainstream active funds. It's a question of mindset - are you a leader or a follower?
• The secret of success isn't so much "picking the winners" as "avoiding the dogs"!
• Don't buy heavily or sell out just because you think the market is low or high. Invest steadily over time.

• Live where you like - it's CGT free and massively beneficial over time compared with a rental property

• Drive what you like! Life's too short....

[anonymous-user]

...and ignore people who say, " I did so-and-so and made a fortune in one day". That's not investment it's speculation.

IMO there are 3 categories,

• Gambling
• Speculation
• Investment

All evidence over the past 100 years says it's easy to lose your money by gambling or speculating and difficult to lose money if you're investing sensibly. Just because gambling and speculation produce a few big winners who make a lot of noise doesn't mean there aren't thousands of losers sobbing quietly in a corner.

[sidicks]

rockin said:

...and ignore people who say, " I did so-and-so and made a fortune in one day". That's not investment it's speculation.

IMO there are 3 categories,

• Gambling
• Speculation
• Investment

All evidence over the past 100 years says it's easy to lose your money by gambling or speculating and difficult to lose money if you're investing sensibly. Just because gambling and speculation produce a few big winners who make a lot of noise doesn't mean there aren't thousands of losers sobbing quietly in a corner.

This is very important - plenty of people on here claimed to have ‘outperformed the profesisonals’ on here, but when subject to even rudimentary scrutiny, it normally turns out that they’ve taken massively higher risks to do so, using extremely undiversified portfolios and investment exposures often not available to retail investment managers.

Nothing wrong with taking that sort of high risk - high return strategy, but you need to recognise it for what it is and not pretend otherwise!

[TartanPaint]

I read "The Millionaire Teacher" on the advice of PH Finance. It only took a couple of evenings to get through, but it was well worth it. It would suit you very well as a starting point.

[lockhart flawse]

sidicks said:

rockin said:

...and ignore people who say, " I did so-and-so and made a fortune in one day". That's not investment it's speculation.

IMO there are 3 categories,

• Gambling
• Speculation
• Investment

All evidence over the past 100 years says it's easy to lose your money by gambling or speculating and difficult to lose money if you're investing sensibly. Just because gambling and speculation produce a few big winners who make a lot of noise doesn't mean there aren't thousands of losers sobbing quietly in a corner.

This is very important - plenty of people on here claimed to have ‘outperformed the profesisonals’ on here, but when subject to even rudimentary scrutiny, it normally turns out that they’ve taken massively higher risks to do so, using extremely undiversified portfolios and investment exposures often not available to retail investment managers.

Nothing wrong with taking that sort of high risk - high return strategy, but you need to recognise it for what it is and not pretend otherwise!

Yes. Took me a while to learn this, the difference between investment and speculation. I now don't buy shares in any company until it has made a profit. Lost too much in blue sky companies that were going to change the world and didn't for all sorts of unforeseen reasons. I have also given up trying to time the market.

At the OP's stage of life I wouldn't be looking too much at fixed income investments; a balanced spread of equities and OIECS will build up very nicely over 20 years or so.

[BanzaiMan]

lockhart flawse said:

sidicks said:

rockin said:

...and ignore people who say, " I did so-and-so and made a fortune in one day". That's not investment it's speculation.

IMO there are 3 categories,

• Gambling
• Speculation
• Investment

All evidence over the past 100 years says it's easy to lose your money by gambling or speculating and difficult to lose money if you're investing sensibly. Just because gambling and speculation produce a few big winners who make a lot of noise doesn't mean there aren't thousands of losers sobbing quietly in a corner.

This is very important - plenty of people on here claimed to have ‘outperformed the profesisonals’ on here, but when subject to even rudimentary scrutiny, it normally turns out that they’ve taken massively higher risks to do so, using extremely undiversified portfolios and investment exposures often not available to retail investment managers.

Nothing wrong with taking that sort of high risk - high return strategy, but you need to recognise it for what it is and not pretend otherwise!

Yes. Took me a while to learn this, the difference between investment and speculation. I now don't buy shares in any company until it has made a profit. Lost too much in blue sky companies that were going to change the world and didn't for all sorts of unforeseen reasons. I have also given up trying to time the market.

At the OP's stage of life I wouldn't be looking too much at fixed income investments; a balanced spread of equities and OIECS will build up very nicely over 20 years or so.

Without knowing the OPs attitude to risk wouldn't be able to comment on his potential asset allocation, but even the most risk happy investors are likely to benefit from the diversification benefit of some non equity exposure. Not sure what benefit holding individual equities would bring.

[FredClogs]

To be fair if you want to research individual investment options and compare funds and etfs etc... Then the HL.website is pretty good as are morning star and trustnet.

Investopedia will help you with all the terminology and lingo.

But if you want a crash course in economics then I wouldn't bother, the micro and macro effects of inflation, the economic cycle and politics are wildly unpredictable, its mostly based on opinion and usually wrong plus completely out of your control anyway, all you need to know is your goals and the available strategies and risks to achieve them, and concentrate on earning money at what you're good at, which you must be good at as apparently earning a very good salary.

[crankedup]

vindaloo79 said:

Subscribe to Investors Chronicle (online) and read some back dated articles from the Portfolio Clinic over the last three years. That will give some context to how other people manage their wealth building and how its perceived.

https://www.investorschronicle.co.uk

Yup, the bible and one that I really ought to be putting in my subs for, been saying that for twenty years now

[stongle]

FredClogs said:

To be fair if you want to research individual investment options and compare funds and etfs etc... Then the HL.website is pretty good as are morning star and trustnet.

Investopedia will help you with all the terminology and lingo.

But if you want a crash course in economics then I wouldn't bother, the micro and macro effects of inflation, the economic cycle and politics are wildly unpredictable, its mostly based on opinion and usually wrong plus completely out of your control anyway, all you need to know is your goals and the available strategies and risks to achieve them, and concentrate on earning money at what you're good at, which you must be good at as apparently earning a very good salary.

I don't think the OP wants to day trade, merely make wise investment choices with income from primary job.

If setting a long term strategy, your last paragraph is bad advice. It's very easy to see and determine that a low rate environment is creating asset bubbles in other products. What you don't want to be is long equity if rates increase significantly. Many people got caught out in 07/08 switching to Fixed rate mortgages "cos easy to manage finance". A lot of IFAs were peddling sh*t. Had they switched or stayed on SVR they would be hugely better off (by using the reduction in interest to chip 90k of the principal).

CCY gains have been a big part of sustaining FTSE value despite BREXIT etc etc.

A scary stat on systemic leverage is that Eurozone bank balance sheet is 320% of the whole blocks GDP. And the ECB has ballooned to EUR6tr. If and when that goes into reversal (which is the aim of BASLE3) you need to be aware of long term impacts.

If your trading the market, you need to understand why and how the Big players might behave. Lest you don't have to learn the old adage "when mainstream talks, Wall Street walks" the hard way.

We are only talking basics, not the Greeks.

Don't think you can beat a balanced portfolio for the long run though.

[stongle]

I should have said long ONLY equity.

[will_]

Sounds like you are trying to create passive income, so that you're not wholly reliant on your salary? Potentially difficult to do in a tax-efficient manner in your circumstances.

Selling the flat is an option, but bear in mind that you now have a higher barrier to re-entry due to the SDLT surcharge if you ever wanted to get back into that market.

[JulianPH]

Harry Flashman said:

Chaps, long post, but I would like some advice: really some pointers.

It has occurred to me that I am financially poorly educated. Let me tell you what I mean. I have a good education, and a good job. But I have little idea of investing, little appreciation of investment risk, and no idea how to make money work for me.

You are far more financially literate than most people, it is just your problem is so much bigger!

Harry Flashman said:

I find myself with the classic middle class problem – I earn well, as does Lady F, and together we can manage our liabilities (mortgage and things that incur expense) and pay for extra stuff. I also realise that I have been thinking of things wrongly – I thought that my house is an investment, and that my cars are assets. They are not – they are both liabilities (they incur expenses). I do have some assets (things that do/could bring income), but they are not working as well as they should.

Your house and Aston are indeed assets, the question is whether the liabilities they generate - compared to the residual capital value and (very important) enjoyment and satisfaction they provide - make them appreciating or depreciating assets. With your home this is easy to calculate, with your Aston it is somewhat more emotive.

What I am saying here is that your house is your home, not an investment. Just because this asset incurs its own costs, it doesn't mean that it is not an asset in its own right. An investment fund is an asset despite incurring you management costs...

Harry Flashman said:

Assets-wise I have cash, and I own a rental flat (also mortgaged). I have no real portfolio of investments – just shares in the company I work for, and a pension that I do not actively manage. I have the classic middle class problem – I am entirely dependent on my salary to live my life.

You do have a portfolio of investments. It is just limited to a leveraged residential property holding and cash. You need to diversify and/or add to this with income producing investments.

Harry Flashman said:

Have any of you changed this? Can it be changed? All I want at this stage is to educate myself – I don’t want to be sold ETFs or investments, or BTL opportunities. I just want to invest in educating myself: I’d like to know what I can read, what courses have worked for you, to learn about the larger investing world. I want to make a start on thinking differently – I am not just looking for the big score.

Yes, I have. When I was 33 I jumped from a highly lucrative financial services directorship to set up my own business. I retired 10 years later aged 43.

It was not easy and very risky, but I ensured I diversified so that I had a degree of protection. I have learnt as much from the need to diversify as I have in wisely investing in income producing assets. You can make things as simple or as complex as you like, but if you MUST follow the three basic rules;

• 1. Income is king when it comes to a non-working (in the conventional sense) life. A £1k yield from a £10k investment is twice as good as a £1k yield from a £20k investment. I know this sounds obvious, but most people look at capital growth and don't pay as much attention as they should to the income yield.

• 2. Don't ever think of pensions/SIPPs/ISAs as investments. They are tax allowances. Use them to the max as the more tax relief/tax free returns you can get the quicker you can hit your goals. Ever heard of anyone saying they don't want to use their personal income tax allowance...???

• 3. Embedded returns (income) is what you should be looking for in any investment. Companies that charge subscribed annual fees for their services will not lose revenue if they don't increase their client base next year. Companies that sell things for a one off fee need to sell the same value of goods/service at the same margin every single year to maintain their revenue. Therefore, search out investments where the income is embedded within a service that is very difficult to do without, or too tiresome to bother cancelling.

Harry Flashman said:

I have had real trouble finding any sort of advisor who says anything but “buy these ETFs and pay me x per cent”.

So do most people. Unfortunately, most financial advisers still charge you for taking up their recommendations (i.e. buying something) rather than for giving you financial advice. One reason for this is habit (this is the only way they were paid up until recently) and the other is that 'advice' is subject to VAT whilst "Bringing about and arranging investments" is VAT free.

Harry Flashman said:

I have a working knowledge of companies, P&L/Balance sheets and securities due to my job, so I am not completely virgin territory. What I do not have is any sort of idea how to make money work for me, rather than me work for money. Any educational suggestions welcome.

Use your working knowledge of companies to form you own decisions on investing. Buying a fund is only one form of investment.

Your pension can access commercial property and land (within a SIPP). My SIPP company makes no charge for this providing £200k is invested in its own funds.

These fund are doing very well for so the ability to buy small pockets of land (that are rented out as paddocks at a double digit return) and commercial property, with full income tax relief on all investments, no CGT or income tax on any gains and at no charge to me for administration makes this a no brainer. Commercial property also can deliver a much higher yield and stronger/long term covenant(s).

So there you go. Investment advice for self independence without ever suggesting a product you should buy!

I await remonstration!

[arguti]

JulianPH said:

Your pension can access commercial property and land (within a SIPP). My SIPP company makes no charge for this providing £200k is invested in its own funds.

These fund are doing very well for so the ability to buy small pockets of land (that are rented out as paddocks at a double digit return) and commercial property, with full income tax relief on all investments, no CGT or income tax on any gains and at no charge to me for administration makes this a no brainer. Commercial property also can deliver a much higher yield and stronger/long term covenant(s).

Your SIPP company sounds very goo. would be interested in further details if possible. thanks

[BanzaiMan]

JulianPH said:

and the other is that 'advice' is subject to VAT whilst "Bringing about and arranging investments" is VAT free.

My understanding is that if the adviser undertakes a review for a fee and there is an understanding is that the client will most likely agree to implement the adviser's recommendations, that is free from VAT, even if the client subsequently chooses not to go ahead with the implementation. For what the OP is after I'd be surprised if it were liable for VAT.

[JulianPH]

arguti said:

Your SIPP company sounds very goo. would be interested in further details if possible. thanks

It is not goo at all!

It is quite good though! Intelligent Money, Bespoke SIPP. Either £200k in Intelligent Money portfolios or £750 a year if not. Everything else regarding your SIPP is completely free (regardless of fund size, multiple holdings and transactions).

It knocks the pants off all other SIPP providers if you want to hold multi assets, as all the others have fixed annual fees for everything and time charging (typically £150 an hour) on top of this.

[NickCQ]

JulianPH said:

My SIPP company makes no charge for this providing £200k is invested in its own funds.

Julian, if it's not a silly question how did you get the funds into your SIPP? I am trapped by tapering, is there any reason to pay in out of taxed income?

[Harry Flashman]

Julian (and others) thank you again.

Julian - I don't have a SIPP. I have three pension plans from former and current employers. Can I get some of them into a SIPP?