Passive investing is an illusion. Like Thomas More’s Utopia and James Hilton’s Shangri-La, it’s a fantasy that does not exist. There is no such thing as passive investing.
The act of investing is a serious business and the principles are the same. Whether you’re an individual investing for your old age, the trustee of a university endowment committing assets to fund future education, there are some basic questions all investors need to ask:-
Suggesting that the above is “passive” is a bit like suggesting that papering the wall of your own lounge is “passive” decorating. It’s not passive, it’s “DIY”.
Lots of people are very good at DIY. They can plumb in sinks, put up wardrobes, hang pictures, paint and paper walls and even wire a house. I am not one of these people.
I did try DIY in the early years after I married Cath (my wife), for two reasons. Firstly I thought it was what husbands were meant to do, and secondly (and this is the real reason) we were skint. Regrettably, my woeful DIY skills exacerbated our strained financial position because we would frequently have to call in someone to rectify the mess I’d made and then pay them to do the job properly. If you ever meet Cath, she will regale you with stories of my DIY mishaps.
I think you can all appreciate the point I’m making. Some people are very good at DIY. Extending, or improving your house, sorting out a problem on your beloved classical Jag or creating a garden that looks like it could be included in the Chelsea Flower Show all take real skill. It is the same with investing.
If you are prepared to:
- put in the time and effort
- learn how different asset classes operate
- work out the best places to trade
- analyse the risks of the possible portfolios that would meet your needs
- …and then decide on the specific securities for inclusion whilst having regard to the tax consequences and effects on your succession planning.
…then by all means go it alone.
Some people really do have the skill and emotional fortitude for DIY investing, but far more people do a bodged job on their own financial affairs, sometimes with horrendous consequences. The past few decades are littered with examples of supposedly fail-safe, secure and promising opportunities that crashed – mostly to the detriment of smaller “DIY” private investors.
For those of you that are undeterred by my warnings of woe and still fancy learning a bit more about the process of investing, I recommend the following as mandatory reading: -
- “Security Analysis” by Benjamin Graham and David Dodd (this is the classic guide for all would be equity analysts)
- “Smarter Investing” by Tim Hale. This will give you an idea of how to access major markets in a cost-effective way.
- “Goals-Based Wealth Management” by Jean Brunel. I met Jean Brunel at a CFA (Chartered Financial Analyst Institute) conference in Frankfurt a few years ago and he gave a brilliant presentation on the importance of constructing portfolios to meet goals.
For those of you going it alone, good luck. For those of you entrusting Courtiers to run your affairs then we will do our very best to meet your future goals.
Happy New Year!
Gary Reynolds CFA
Chief Investment Officer
Issued by Courtiers Asset Management Limited, CAM0120335. Courtiers Asset Management Limited is Authorised and Regulated by the Financial Conduct Authority - Register No: 616322. Address: 18 Hart Street, Henley on Thames, Oxfordshire RG9 2AU. Telephone: 01491 578368 Fax: 01491 572294 Website: www.courtiers.co.uk.
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