Investing - Where's the pot of gold?

Bostonerimus1

HedgehogRulez said:

Bostonerimus1 said:

HedgehogRulez said:

I’m not sure we’re anywhere near exponential growth….

Particularly when there’s the Great Market Crash of our time just around the corner 😗

Compounding is a basic feature of investing and by definition your pot will grow exponentially with time...well hopefully, but definitely with a saving account. The growth will depend on the rate of return and folks like Napier and Bernoulli showed that it will also depend on the period of the compounding. The exponential growth of an investment is exactly why you are encouraged to invest for the long term.

It won’t be growing much if the unit value is worth mere pennies when you bought for pounds!

But the fall in value would still be exponential, it's just that you'd have a negative return. Saving accounts will still grow exponentially.

There are certainly ways to lose value with investment funds, just ask the people who bought Woodford. But by following a few simple rules you can greatly increase your chances of long term success: keep things simple; only buy from reputable companies; only buy inexpensive index funds; expect to stay invested for decades.

Several people have commented about the fluctuations in value that happen with investing, but the critical thing to realize is that with regular annual returns the value of your pot will follow a power law with time (that's exponentiation) so the "pot of gold" comes with long term investing. 

Hammer56

Just to reinforce earlier comments, investing beats savings in the long run. 

Markets sometimes fall suddenly owing to a world event (COVID,Ukraine war, Trump tariffs) and those dramatic graphs make a good TV news story. Similarly the fall of big companies where their shares drop dramatically  (such as Debenhams) or even to zero. Such 'in your face news' scares off many ordinary people from investing. My parents are like that.....the money notionally lost from 25 years of saving in pitiful easy access accounts makes me wince.

Gains, when they come, tend come drip by drip over period of time, punctuated by small drops, but trending higher over a longer period. It doesn't make for dramatic headline news so people who fear "losing all their money" never really hear about the upside until they've missed the boat. If you look at the graphs of the major indexes - FTSE All-World, the USA's S&P 500 or  even the FTSE 100, all those dramatic drops look like blips, minor bumps in the rear view mirror. Yes, there will be more like it in the future, but hold on, don't panic and the markets will recover in time. For example, the 12% drop in the S&P in early March 25 following Trump's tariff announcements, which dominated the news for a week, had been completely recovered by mid-May - it wasn't news because the gains came a half per cent here and a quarter percent there.

Of course it wasn't always easy for ordinary people to invest, until the age of the internet and easy to use low cost platforms like Vanguard and AJBell, and the advent of apps like Trading212.

It's a bit tortoise and hare ..... savings are a tortoise, investments are a faster tortoise (the hare is something risky like crypto - win big or lose big). Diversity in investing is key, you can't have all your eggs in one basket, certainly not one share/fund, but not all in one commodity, country, territory or industry sector either. One of the challenges is the sheer volume of choices. The main thing, it's not about get rich quick...it's investing, not gambling. 

Of course this is not the place to say buy this or buy that. For the new investor, index trackers are the best place to start, to spread your risk, and it will enable you to build confidence in riding the inevitable ups and downs. You'll need to do more research online,  ask other people with experience, read the personal finance pages of Sunday papers such as the Times or Mail (or the Wednesday edition of the Mail) and watch the markets and a few ETFs for a while - (the iphone Stocks app or Yahoo Finance on Android are good, they are essentially the same app).

HedgehogRulez

Bostonerimus1 said:

HedgehogRulez said:

Bostonerimus1 said:

HedgehogRulez said:

I’m not sure we’re anywhere near exponential growth….

Particularly when there’s the Great Market Crash of our time just around the corner 😗

Compounding is a basic feature of investing and by definition your pot will grow exponentially with time...well hopefully, but definitely with a saving account. The growth will depend on the rate of return and folks like Napier and Bernoulli showed that it will also depend on the period of the compounding. The exponential growth of an investment is exactly why you are encouraged to invest for the long term.

It won’t be growing much if the unit value is worth mere pennies when you bought for pounds!

But the fall in value would still be exponential, it's just that you'd have a negative return. Saving accounts will still grow exponentially.

There are certainly ways to lose value with investment funds, just ask the people who bought Woodford. But by following a few simple rules you can greatly increase your chances of long term success: keep things simple; only buy from reputable companies; only buy inexpensive index funds; expect to stay invested for decades.

Several people have commented about the fluctuations in value that happen with investing, but the critical thing to realize is that with regular annual returns the value of your pot will follow a power law with time (that's exponentiation) so the "pot of gold" comes with long term investing. 

I get it: investments are bad. So you’re saying I should buy something safe like silver for the long term?

Eyeful

wmb194 said:

RootOfAll said:

As it happens, I did see Martin Lewis's investment focussed programme the other day and it nudged me to have a closer look at investing.  I thought the programme was perhaps a little too glowing and the only chillier note was struck when one of the featured financial advisors admitted that she couldn't help anyone with less than £30,000 to invest.  Having £30k to hand being beyond all imagining to the larger portion of viewers we might think.  

For smaller sums you can consider 'robo-investors' which take you through a questionnaire to assess the risks you're willing to take and then invest accordingly: less risk means more bonds and fewer equities and vice versa. E.g., JP Morgan Personal Investing (formerly Nutmeg), Wealthify and Moneyfarm. It'll be more expensive than doing it yourself but for a new investor they're not terrible at giving you an idea of what a diversified portfolio looks like and what to invest in.

That is certainly one way to determine how much risk to take.
However, the DIY investor with a little research can find alternative ways.
Examples from:
 
(a) IFA Pete Matthews (Chartered Financial Planner)
https://meaningfulmoney.tv/2022/09/26/how-much-investment-risk-should-i-take/?sfw=pass1767308303

(b) Standard Life co.uk: Assess your attitude to risk.
https://www.standardlife.co.uk/investments/tools/investment-risk

RootOfAll

There are some very helpful ideas being provided.  Thank you.  Keeping a hold on the concept that investments are floating assets rather than a specific piece of money looks like valuble bedrock.  Also the idea that share prices are likely to rise with inflation as inflation tends to mean the prices of everything rise, seems encouraging.  However, five minutes groping around the internet suggests there's a wide range of angles and views regarding the relation between inflation and investments so as ever, nothing's a dead cert.

I've got enough put by for emergency pots and such like (and I've no overhanging debts of any kind) and I think my preference is to look for income investments.  I'm living well enough within my means at the moment so likely it will mostly be ploughed back in but we'll see.  A few diverse funds seems the safest way to go, if I'm understanding the general picture aright, so I'll start window shopping and researching in that direction.  - Assuming I go ahead with all this! but I expect I probably will, and edging in gently.  I liked Hammer56's 'faster tortoise' picture.  That sounds like the ambition to have in mind.

I wasn't intending to knock financial advisors in my previous post.  Only to mention the cold disparity between the broad canvas being painted (in the show) and the far narrower horizons that most people have to live in.  This is similar to the situation with pensions where there's much urging to consult a financial advisor but I recall it was reported that most people's pension pots are £25k or less and, as I heard an advisor say on the radio, for that amount of money it's not really worthwhile consulting her.

Bostonerimus1

HedgehogRulez said:

Bostonerimus1 said:

HedgehogRulez said:

Bostonerimus1 said:

HedgehogRulez said:

I’m not sure we’re anywhere near exponential growth….

Particularly when there’s the Great Market Crash of our time just around the corner 😗

Compounding is a basic feature of investing and by definition your pot will grow exponentially with time...well hopefully, but definitely with a saving account. The growth will depend on the rate of return and folks like Napier and Bernoulli showed that it will also depend on the period of the compounding. The exponential growth of an investment is exactly why you are encouraged to invest for the long term.

It won’t be growing much if the unit value is worth mere pennies when you bought for pounds!

But the fall in value would still be exponential, it's just that you'd have a negative return. Saving accounts will still grow exponentially.

There are certainly ways to lose value with investment funds, just ask the people who bought Woodford. But by following a few simple rules you can greatly increase your chances of long term success: keep things simple; only buy from reputable companies; only buy inexpensive index funds; expect to stay invested for decades.

Several people have commented about the fluctuations in value that happen with investing, but the critical thing to realize is that with regular annual returns the value of your pot will follow a power law with time (that's exponentiation) so the "pot of gold" comes with long term investing. 

I get it: investments are bad. So you’re saying I should buy something safe like silver for the long term?

Read the last sentence. If you don't understand it you should not be investing and certainly not in silver. 

dunstonh

I wasn't intending to knock financial advisors in my previous post.  Only to mention the cold disparity between the broad canvas being painted (in the show) and the far narrower horizons that most people have to live in.  This is similar to the situation with pensions where there's much urging to consult a financial advisor but I recall it was reported that most people's pension pots are £25k or less and, as I heard an advisor say on the radio, for that amount of money it's not really worthwhile consulting her.

Actually, that is incorrect.    The average pension pot is in that ballpark.  Not the total per person.     Many people have 2, 3,4 or more pensions.    

Plus, due to auto-enrolment being relatively recent, there are a lot of small pots out there.   These drag the average value down.     In addition, its not until later life that you tend to get a larger amount.    

One of the old sayings (aimed more to get people to realise what they had to pay in to be realistic) was the aim to have £35k in your pension by age 35.         So if you use that as a guide, then pretty much most under 30s are going to have pension pots of less than average.   Plus, the modern world is no longer a job for life but rotating between employment and gettng a new pension with each job.

I generally do not see clients with less than £100k unless its a relative of close friend of an existing client.    However, I am long-established and have capacity issues and can afford to pick and choose.    A trainee adviser coming through at my firm will consider everyone as he isnt anywhere near capacity.    There is a firm in the nearest city to us that trains university graduates and sets them up, and again, they will take anybody initially because they have capacity.       So, whilst the older, more experienced advisers are more likely to have minimum limits, the younger, newer ones are not.

Alexland

RootOfAll said:

However, five minutes groping around the internet suggests there's a wide range of angles and views regarding the relation between inflation and investments so as ever, nothing's a dead cert.

When looking at short time periods of just a few months or years people get upset their investments will not be synchronised with the latest inflation measures particularly if the inflation is expected as markets will have forward priced it so by the time it happens it doesn't affect the price. Inflation can cause companies to struggle for a bit with rising input costs and difficulty in customers accepting price rises but it seems to sort itself out eventually if the business model is sound. As always think long term as the short term can be almost random. Just be aware there are powerful forces working in your favour.

LHW99

Alexland said:

RootOfAll said:

However, five minutes groping around the internet suggests there's a wide range of angles and views regarding the relation between inflation and investments so as ever, nothing's a dead cert.

When looking at short time periods of just a few months or years people get upset their investments will not be synchronised with the latest inflation measures particularly if the inflation is expected as markets will have forward priced it so by the time it happens it doesn't affect the price. Inflation can cause companies to struggle for a bit with rising input costs and difficulty in customers accepting price rises but it seems to sort itself out eventually if the business model is sound. As always think long term as the short term can be almost random. Just be aware there are powerful forces working in your favour.

Look up "pound cost averaging" - when the price drops, the number of fund units you buy goes up!

Get rich slowly, because the get rich quick bods are liable to also get poor quick.

RootOfAll

Further to inflation:  In the world of savings accounts I'm accustomed to look at say a fixed cash ISA with an interest of say 4.2% and then knock off say 3.5% for inflation and envisage a church mouse payout of 0.7%.  

However, in this world of investment, and I'm going to be most interested in income investment, I think I see that we assume the devaluing effect of inflation is going to be completely covered in the long term by the long term rise in value of our shrewd portfolio (we reasonably hope).  Hence a yield of say 3% really is a full 3% and any dividend payout is fully in our hands to do with as we may (including reinvesting) and not requiring to have a chunk effectively set aside to cover inflation.

Coming from planet Savings, this is a startling but delightful concept - just to be absolutely sure, can I ask, am I within touching distance of the right idea here please?