What's your personality type?

What’s your personality type?

Know Thyself – Socrates

Throughout my life, I’ve been fascinated by personality type tools because I  believe they can offer useful insights into your own personality, behaviour and motivations as well as those of other people. The idea is that if you can recognise different behaviours more fully you can, if you choose, become more adept at living and working together. These days such profiling tools come in all sorts of flavours and fashions. Examples include Enneagram, Belbin team roles and the Kiersey temperament sorter.

My personal preference is for the Myers-Briggs (MBTI) model, which identifies 16 different personality types and seeks to find one that describes you. Each of these are of equal value and non-judgemental (there is no good and bad, just different) and there is no attempt to describe the intelligence, ability or the skills you have. Neither does it claim to improve your love-life (erm, it isn’t Tindr) or make you rich, except perhaps in spirit.

Instead, it suggests that though you are an individual you still have a fundamental personality type with characteristic strengths and weaknesses, which can change as you develop over your lifetime. It is based on four main factors; where you get your energy from (introvert or extrovert), how you take in information (by evidence or intuition), how you prefer to make decisions (by thinking or feeling) and how you prefer to live your life (control or spontaneity). Your attitudes to these places you in one of the 16 categories that match your preferences, each being described by a combination of four letters, such as ENFP, INFJ, ISTP etc.

While MBTI has decades of research and refining behind it and millions of people have taken the test, there has been plenty of criticism (as there tends to be for all theoretical models of behaviour). Some will doubtless see such methods as akin to believing in horoscopes or the I-Ching and others may find that their preference type does not seem to describe them accurately. Others follow the results so slavishly that it in itself becomes a mind-trap. Yet I’ve found it helpful as a way to think about my own fundamental preferences, why I get on with some people rather better than with others, how I could be more effective, what motivates me and how I react under stress (oh, Jekyll and Hyde resonates with me!)

I have taken the MBTI test many times and not only do I always come out as the same personality type but I find the detailed descriptions of my preferences scarily accurate – there is clearly a best-fit that works for me. However, while I’m an advocate it’s important to remember that this is only about preferences, we are all human and imperfect and MBTI isn’t a set of rules, rather suggestions. Make of it what you will.

There is no way I can do MBTI justice in a blog, millions of words have in any case already been written about it, some good and some bad. But if you are curious to find out more then there are plenty of websites offering free online questionnaires that will give you an idea of your personality type. If it seems to work for you then you could consider taking the full MBTI test, which is more detailed. The most succinct and accessible publication about the subject I have ever read is by Jenny Rogers.

As an example, the following descriptions of how people react to rules according to the MBTI preferences is a lighthearted look and not to be taken too seriously. I can’t claim originality for this list or recall where I first saw it – if the author is out there I’ll happily credit. See if you recognise any of these!

ENTJ: I MAKE the rules

ESTJ: I’ve written down the rules and here are *hands out* copies for everyone

ESFJ: I’ve bent over backwards to fulfil all the rules

ENFJ: Rules are just great – they help us be better people

INTJ: I’ve discovered all the inconsistencies with the rules and therefore consider them void

INFJ: These rules are not benefiting everyone. So I’ve made up my own rules but I might not tell you what they are

ISTJ: I’ve completed everything according to the rules

ISFJ: These rules suck!!! *then goes along with the rules anyway*

ENFP: OOPS! I didn’t realise there were rules!

ENTP: I’ve discovered these rules are not actually fulfilling their purpose. Let me tell you why…

ESFP: Is there a fine for breaking the rules? I’ll just pay that…

ESTP: Watch me break all the rules!!!!!

INTP: I’ve figured out a way to bend each rule

ISTP: These rules are important for others. If I feel like it I might follow along

ISFP: I’m breaking all the rules, but it’s okay because I don’t think anyone noticed

INFP: I’m completely unaware that rules exist. * Worries about why everyone else seems so stressed*

What type are you? Are you an advocate or a critic of such tests?

What type am I? Isn’t it obvious?

Planning for incapacity in later life

Think this doesn’t apply to you? — maybe think again…

This piece isn’t directly about planning for retirement. Neither does it concern making a will or dealing with inheritance tax. These are all serious subjects, but arguably there is a bigger spectre haunting us.

No, I’m talking about what happens if someone that is still living loses their mental capacity, which means that they are no longer able to make decisions for themselves.

Many of us will have a family member or know someone where this distressing event has happened or could do in the future. It could be me. It could be you. Or a parent or a sibling. Not something we like to imagine, let alone talk about, is it?

Clearly, people are living longer. Over the last thirty years, life expectancy in the UK at age 65 has increased by 40% for men (to age 83.2) and by 23% for women (to age 85.7). This trend is expected to continue thanks to healthier lifestyles, better diet and continuing medical discoveries. Indeed, the Office for National Statistics predicted that one-third of all the babies born in 2013 in the UK will live beyond age 100, a once unimaginable milestone for most people. Many of us can expect to get a Royal Telegram (or will it be a Royal Text by then? Sorry, I digress).

Longer life is, of course, good news. Yet a healthy life expectancy is increasingly an issue — you or someone close to you may, unfortunately, need help with making decisions because of mental incapacity as well as help with any physical care needs, which often go hand-in-hand. A frightening thought that we shy away from.

Dementia is a major but not the only cause of mental incapacity. The Alzheimer’s Society  estimates some 850,000 people are living with dementia in the UK today and this is forecast to rise to 1 million by 2025 and over 2 million by 2051. Statistically, coping with dementia is a reality that we may be affected by or have to deal with at some point in our lives.

Of course, this might not happen to you and yours, in which case, be grateful. We can hope for new treatments in future that can predict, reduce or even prevent such diseases but that time isn’t now.

While none of us can predict our future with any certainty, we can foretell the consequences of incapacity and plan accordingly. The path to mental incapacity is usually gradual, it isn’t an off/on switch. But what will happen with a property, finances or even making those simpler day-to-day decisions that we all take for granted,? Especially if financial assets are solely in the incapacitated persons name and bills need paying?

An example: think Social Services will step in and pay for residential nursing home costs? Only if the person is relatively poor, with assets under £14,250, will costs be paid in full. In fact, the State won’t fund such care at all if the person has over £23,250 in assets. Meanwhile, the planned 2016 increase in this maximum to £72,000  was postponed by the Government until at least the year 2020. So if the incapacitated person is a home owner then in most cases they will have to pay for care themselves and frequently the sale of the person’s home will be needed to do it. How else to find around £40,000 or more per year for the rest of someone’s lifetime?

Now, many  will see this as penalising those who have saved for their old age whilst those that have been, ahem, less prudent are eligible for state funding. Others will suggest that the taxpayer shouldn’t have to underwrite the inheritances of the wealthy. You can decide, depending on your political colour. Regardless, it is oft reported that around 40,000 people sell-up every year. 350,000 people are in nursing homes and approaching half are now self-funded while it is predicted that 850,000 will need such care by 2030. That could be you or a loved one.

Hence, I think it’s worth getting informed and not leaving things to fate. The Mental Capacity Act of 2005 defines the legal framework in England & Wales* and governs the legal position of mental incapacity; for example, as to how capacity is assessed, how those making decisions on behalf of the incapacitated person must always act in the person’s best interests and the safeguards that there are to prevent harm or exploitation. The Alzheimers Society has a really good synopsis.
Anyhow, the Act created ways by which you can plan for future incapacity. That way the person can ensure what they wanted to happen will still be carried out, even when they are no longer in a position to be able to decide for themselves.

The first is the Lasting Power of Attorney (LPA), which comes in two flavours; one covers property and financial affairs, the other deals with health and welfare. Someone can have both. The person chooses an attorney (or attorneys) while they still have the capacity to decide, but it only comes into play after they are assessed as having lost their capacity to make their own decisions. As the role of LPA involves a great deal of power and responsibility it is vital that the person giving the LPA chooses someone that they trust. The LPA is registered by the

The LPA is registered by the Office of the Public Guardian and takes around 9 weeks. The application process, while lengthy, is relatively straightforward and can be done DIY at low cost. Alternatively, you can involve a solicitor at a naturally higher cost – that might be preferential depending on the complexity of arrangements, individual family circumstances or simply having the time to arrange it.

The second option is Deputyship. Many have not created or even wanted to create an LPA. If they then lose the ability to make decisions without already having made an LPA it’s then too late to get one. It then becomes very difficult for those trying to help, especially with financial decisions. Only someone with legal power can completely manage another person’s finances. Try dealing with Bank without a registered LPA or Deputyship! Really, Deputyship is for those that have not planned or refused to plan ahead.

In such circumstance, you will need to apply to the Court of Protection to become their Deputy. It is also possible to become a Deputy for health and welfare decisions. You will need to demonstrate that there is a need for decisions to be made that only a Deputy can make. This is an even more onerous undertaking than LPA because the person you are acting for has not and could not give you consent. Because of this, the Court must be satisfied that you are acting in the persons best interests at all times, and will also insist that you enter into a security bond to protect the persons assets. You will also be under Court supervision, for example by making regular reports and keeping accounts of decisions and financial transactions. This process is very time-consuming (usually a minimum of 16 weeks, often longer), full of lengthy paperwork and can become costly, even when arranged DIY.

This is a much more onerous undertaking than LPA too because the person you are acting for has not and could not give you their consent. Because of this, the Court must be satisfied that you are acting in the persons best interests at all times, and it will also insist that you enter into a security bond to protect the persons assets. You will also be under Court supervision, for example by making regular reports and keeping accounts of financial decisions and transactions. This process is very time-consuming (usually a minimum of 16 weeks, often longer), with stages full of lengthy paperwork. It is also costly, even when done DIY.

Having had to resort to obtaining Deputyship myself, I firmly believe that doing something early on while a person has capacity is the best route, so don’t leave it too late.

Whatever you decide to do, it all starts with a conversation. While having that may actually turn out to be the hardest part, please have that sooner rather than later. If you then agree to apply for an LPA I hope you never have need of it!

Please note: this blog is by its nature simplistic and of a general nature and is based on my personal experiences. For example, I became an appointed Deputy under the supervision of the Court of Protection using DIY. I am not a legal professional and if in doubt it is wise to take professional advice.

Below are really good organisations with invaluable free resources that helped and guided me on my own journey, so check these out:

AgeUK
They have factsheets on everything, from mental incapacity to applying for LPA or Deputyship, to paying for nursing home fees. Brilliant helpline too!

Alzheimers Society
While also strong on the legal side they have lots of practical advice on living and coping with dementia on a daily basis.

Office of the Public Guardian
All you need to know about LPA, with online forms, processes and  guidance.

Court of Protection Applying for Deputyship, guidance and online forms

*Mental Capacity Act: The legal position is different in England & Wales to that in Scotland, which has its own arrangements

So you want to try DIY investing? – Part 3

In this third and final part of the DIY investing trilogy it’s time for the Mad Hatter’s Tea Party, aka selecting an investment service to meet your needs. Part 1 described getting a plan together while Part 2  covered the types of investments and asset classes you might choose. With those in mind it’s now time to find an investment service so that you can put it all into practice.

The Mad Hatter: “There is a place, like no place on earth. A land full of wonder, mystery, and danger. Some say, to survive it, you need to be as mad as a hatter. Which, luckily, I am.”  

The Dormouse: “you know you say things are ‘much of a muchness’ – did you ever see such a thing as a drawing of a muchness?”

– Lewis Carroll, Alice in Wonderland

There are a dozen or so services in UK aimed at DIY investors, with more on the way. These are now often referred to as Investment Platforms. They are brokerage interfaces that give you access to various financial markets, product providers and a whole lot more. Some are good, some not so hot, but each will have a separate set of strengths and weaknesses – none are perfect.

Hence your choice of a suitable DIY service should be made against your plan and what you want to invest in. Giving this some thought now will save tears later if the service does not meet your expectations.

The aim is to find a service that is convenient, reliable and quick, offers value for money, that is safe and secure and that can buy, sell and hold the investments you want, now and in future – all in a usable way.

You are, in short, looking for a service you can trust. So here is a handy list of 15 checks to make to help you find the service that is right for you.

1.  Make sure the service is regulated by the FCA, with your assets segregated and protected by the Financial Service Compensation Scheme (FSCS) and the Financial Ombudsman Service (FOS) should the service ever go bust or you have a complaint – the regulator is your friend! Bone fide platforms will state this clearly.

2. Does the platform have an established track record – those that have been around the block a few times usually have more customers and assets, more reliability and deeper pockets to invest in continuous improvement. Some may also offer advice. But the biggest may not be the best and many are not exactly household names. Google the platform, what are their customers really saying about it?

3. Look for a minimum of three account types, a general investment account plus the tax-efficient ISA and SIPP accounts. You may not need them all to begin, but it’s future proof. You might also want a JISA (Junior ISA account) if you have children to invest for.

4.  Does the platform offer the assets you want to invest in, now or in the future? UK company shares and mutual funds are commonplace. But how about International shares, ETFs, Investment Trusts and Bonds?

5. Some services have separate accounts that keep mutual funds, UK shares and international shares apart. Usually a historic legacy and worth avoiding – it will just make your life more complicated and it’s harder to see all your investments in one place.

6. Conversely, some platforms offer overwhelming choice!  With DIY there’s no advice, so look for Guidance: short-lists of selected funds and ETFs, ready-made investment portfolios, plus essential selection tools and filters to help you narrow down and find the investments you want. The platform should also provide you with the explanatory investment documents you need. For beginners, a well laid out “education centre” that uses plain english to explain investments is helpful.

7. These days, online access is the norm, being both cheaper and easier. However, those that  also offer telephone support mean that you have a backup or someone to talk to should you need to.

8. And online access means your account will have a cash component and what is called a nominee. These enable the investments to be held securely on your behalf by the platform and facilitate speedy transactions. The days of paper certificates are long over! It should also mean that you can opt for electronic communications and statements to avoid being bombarded with paper.

9. Do check that the online service works with your browser! Yes, you might be surprised that your browser of choice isn’t always supported in the 21st century, but that’s a fact.

10. Do you want an App? Some platforms have released apps but not always for both iOS and Android, while others prefer to optimise their websites for mobile instead. An app is not yet essential so be clear what you want an App to do – some just monitor investments and offer news. Others allow you to buy and sell. But can you fund the App with cash in order to invest? Amazingly, few have this very basic facility!

11. And talking of funding, you should be able to fund your accounts with cash easily, that means debit card and Bacs from your bank account plus a direct debit facility for regular investing. Similarly, payments back to you should be electronic.

12. As well as lump sums, there should be a regular investment facility charged at lower cost for smaller sums that can invest in Mutual Funds, ETFs and the FTSE350.

13. Fees and costs. I’ve left this to nearly last because sometimes, if you pay peanuts you get monkeys. Ideally, you are looking for value for money from your service remembering that all the costs represent a drag on your investment performance. These costs are split into the charges made by the investment itself and the charges made by the investment platform service, so look at the total cost of ownership as you pay both and they will vary by service provider.

All charges should be easy to understand, well explained, prominent and transparent and available on a rate card.  Gradually, fees have been reducing due to competition and regulatory changes. There will be transaction charges for trading listed investments such as shares, ETFs and Investment Trusts. Mutual Funds may be charged in this way but are more likely to attract an annual platform fee based on the size of the investment held. Regardless, always dig below the headline rate. Fees may be charged at a fixed price but also take care with percentage or tiered fees that increase as your investment grows. Check also for account fees, inactivity fees and other miscellaneous service fees, including exit or transfer fees. If you ever want to change the service provider in the future exit fees can get expensive, though some platforms have now abolished them. Charging should be simpler and easier to compare across platforms – it’s an ongoing industry theme – if in doubt about any of the charges then ask the service provider to explain.

14. Please, please read the Terms of Service. Yes, it’s an incredibly dull and frequently lengthy legal document but it sets out what the service will do for you, and just as importantly, what it won’t. You are entering into a legal contract by accepting the service terms and saying you’ve read and understood it, so it really is in your interests to look before you leap!

15. Ready to open an account? Take a look around the chosen platform before you commit to get a feeling for usability. Most are split into a public section open to non-customers and a secure section only for registered customers where the transactions, assets and private data is held.  Is there easy navigation, perhaps split into beginners and more advanced sections? Is everything clear and well explained? Perhaps an account demonstration facility? Getting lost in a sprawling and unnavigable website is still a hazard! Try it on for size – does my bum look big in this?

Account opening itself should be online and straightforward, taking only a few minutes, ideally allowing you to invest immediately, subject to status. In these days of money laundering and terrorist financing it is quite right that care is taken to establish credentials. However, it doesn’t mean that services offering only a paper/post process that takes days or weeks is remotely acceptable. Your experience in account opening is likely be a good pointer to your future overall platform experience.

So, here we are and hopefully you’re now ready to invest and  don’t feel too much like the Dormouse with his head stuck in a teapot. DIY investing has never been easier but having a plan, choosing investments and selecting a service all take a little time and commitment.

Do let me know your experiences, good and not so good – and good luck!

 

Drink Me

So you want to try DIY investing? – Part 2

“She generally gave herself very good advice, (though she very seldom followed it).          – Lewis Carroll, Alice in Wonderland

If you’ve read Part 1 then by now you might have a realistic financial plan with a defined goal and a timescale and know how much risk you feel comfortable taking. You know what you can afford to invest and how much you can afford to lose. But what type of investments might fit with this?

I’m sticking with regulated and tradable investments that are typically thought suitable for private DIY investors and made easily available from reputable regulated companies. These normally have the advantage of being eligible for UK tax-efficient accounts such as ISA and SIPP too. There’s a massive amount of choice out there so this can only give a simplified flavour, with pointers to find out more.

Those that want to invest in esoteric stuff like fine wine, carbon credits, Ukrainian golf courses or even car parking can look away now – there’s nothing here that’s unregulated, nothing that’s get-rich-quick either. Unregulated investments mean that you cannot make a claim against the Financial Services Compensation Scheme (FSCS) if the company fails. You probably won’t be able to complain to the Financial Ombudsman Service (FOS) if there’s ever a problem either. While some unregulated investments are bone-fide if high risk, such stuff is also a scammer’s paradise.

The Golden Rule is: If you don’t understand the investment, whatever it is, don’t do it (or get independent financial advice first!) That means you do have to do some homework.

Investments can’t all do well at the same time and different types, called asset classes, can be more or less risky depending on their response to economic factors such as growth, inflation, changes in interest rates and world events. Diversification is a strategy of not putting all your investment eggs in one basket. That can help reduce the overall risk by dampening the impact of adverse events or market conditions, however it won’t guarantee profits or completely insure against losses. One way of diversifying is to choose investments from different asset classes and build a portfolio of different investments, called Asset Allocation. The main asset classes are stocks and shares, bonds, various collective investments, property, commodities and currencies.

Stocks and shares
Stocks, shares and equities all describe the same thing. When you buy a share, you are buying ownership of a company as a shareholder. Company shares are usually bought and sold on stock exchanges. Most UK shares list on the London Stock Exchange (LSE) and it’s worth starting there. Investopedia offers a good explanation of how stock markets work.

It is also possible to buy and hold shares in foreign companies on stock exchanges around the world. While these work in a broadly similar way to the UK there are foreign exchange charges and currency risks and each exchange has their own specific rules and quirks. Hence direct investing in international shares are usually best left to those with experience of their home market.

Bonds

Bonds are either government debt (gilts) or debt issued by companies (corporate bonds) to raise money. In simple terms a bond is an IOU for a fixed time period that can usually be traded at any time. During the lifetime of a bond, the bond holder receives interest payments. The bond is then repaid to holders at the end, known as a redemption. Because the lifetime of the bond and the interest paid are usually fixed at the outset, they are also known as “fixed-income” investments. Bond markets work very differently to stock markets, often in opposing directions. When stock markets are buoyant, bond markets become weaker, and vice-versa. Bond markets are often seen as a relative place of safety with a stable regular income, though the specific risks involved depend on the nature of the bond and the issuer

Government Bonds are generally seen as a safe haven, unless a country is experiencing extreme economic difficulties (witness Greece). Corporate bonds are riskier as a company can become insolvent and then it would be difficult for bondholders to recoup their money. Very risky bonds are known as Junk Bonds. With any Bond, a credit rating is an important risk benchmark, so ratings made by companies like Standard & Poor’s are massively influential. Again, Investopedia explains how Bonds and Bond markets work.

Investing in shares and bonds demands research and an understanding of how the markets work. If you are ok with this then good for you. However, many potential DIY investors are discouraged by the time and commitment involved. That is one reason that collective investments are a popular alternative.

Collective Investments

Collective investments are where people pool their money together to invest in a basket of assets that could include almost any combination of shares, bonds, cash, property and commodities. One attraction is therefore ready-made diversification – the basket of shares held is usually much wider than you would be able to buy directly and an underperformance in one part can be offset by a greater performance in another. Another is that they are professionally managed. Because they are closely regulated there is also copious explanatory documentation (either as a prospectus or a KIID (key investor information document). This explains the aims, costs and risks. Collectives come in a number of forms – the most familiar are Mutual Funds, Investment Trusts and ETFs. Morningstar is my go-to source for explanation, analysis and performance ratings.

Collectives make ongoing charges for a manager working on your behalf and the costs of constructing the basket. These costs vary by a considerable amount, though new rules and competition has meant that these have fallen in recent times.

Mutual Funds
If you buy into a mutual fund, you are buying a stake in a range of investments that are held and usually actively managed by a professional fund manager, who aims to beat the market. The Managers aim is to grow the value of the fund,  so increasing the fund price or generating income. You may see mutual funds referred to as OEICs or Unit Trusts; these differ in structure but their principles are the same.

There are thousands of mutual funds available. While some funds might focus on buying bonds, others might specialise in backing specialist companies or industry sectors, hold commodities, property or focus on geographical regions.This means that each mutual fund has a stated goal, a strategy and a specific risk profile that ranges from low to high risk. Ongoing costs are typically 0.5%-1%.The Investment Association (IA) is a good place for explanations of how they work.

Investment Trusts

Investment Trusts are specialist companies listed on the stock market that actively invest in various assets to make a profit. There are around 400 in the UK. For example, property is a common asset due to certain tax breaks, and a popular way of investing in bricks and mortar. As the number of Investment Trust shares in issue is fixed, so the share price is driven by market demand, just like a company share. As a result, the value of the shares can be worth either more (a premium) or less (a discount) compared to the real value of the assets held. Hence they can be more volatile than a mutual fund. Again, there will be a stated aim of the Trust and a prospectus explaining the risks, ongoing costs, (typically 0.5% – 0.85%) and any performance fees. The Association of Investment Companies (AIC) is a good resource

Exchange Traded Funds (ETFs)

An ETF is a more recent design of collective investment, listed as a company share on a stock exchange, and these have become very popular. They track the price movement of a pre-defined index (say the FTSE100). There are thousands of indices created for ETFs to track. The index is based on shares, bonds, property, commodities or some combination. ETFs return the price performance of the chosen index and don’t try to beat the market. While that might sound dull, it is inevitable that not all actively managed mutual funds will beat the market. Because ETF performance does not rely on a managers ability, so they are known as passive investments and have far lower ongoing charges than other collectives, typically from 0.05%-0.5%. There are thousands available, ranging from simple low risk ETFs to high risk esoteric forms only suitable for sophisticated investors. The ETF prospectus/KIID document will explain the risks, costs and what the index consists of. ETF.com is a good place to help develop an understanding of these.

Some food for thought then. If I still haven’t put you off DIY then now its time to do some homework and target investments that potentially match your plan. Personally, I’d start with collectives and look at the others as you become more confident, but that’s down to you. The enormous choice might seem initially bewildering – but take heart from the fact that you can use online filters to help narrow your search and performance ratings from companies such as Morningstar. Good luck!

Next Time…

Part 3: making it happen – what kind of investment service will meet your needs? You have a plan, you maybe now have an idea about what you want to buy. But you’re still down the Rabbit Hole. Time for the Tea Party!

So you want to try DIY investing? – Part 1

Are you attracted to the idea of making your own investment decisions with a DIY approach and not use (and pay for) financial advice? A large number of people are, but are put-off by not knowing how to start or become daunted by the commitment. It’s easy to become swamped with information too – much of it deeply boring, most of it full of unfathomable jargon in anything but plain English. Opinions are everywhere, from investment professionals who can’t agree down to the mate in the pub with a hot tip – who then to believe? It’s tempting to just jump in with scant disregard for the consequences. Learning the hard way may soon part you from your money.

Alice: “Would you tell me, please, which way I ought to go from here?”
Cheshire Cat: “That depends a good deal on where you want to get to.”
Alice: “I don’t much care where…”
Cheshire Cat: “Then it doesn’t really matter which way you go.”
Alice: “…so long as I get SOMEWHERE.”
Cheshire Cat: “oh, you’re sure to do that, if you only walk long enough.”

Lewis Carroll – Alice In Wonderland

DIY doesn’t have to be like that.

Here is my home-brewed beginners guide to DIY investing. I make no apologies for occasionally stating the obvious – because so often it isn’t. While this isn’t guaranteed to make you any money it does at least attempt to make the process straightforward. DIY investing means that you alone are responsible for the investment decisions you make – you become your own financial adviser. For some that’s too scary, for others, it’s exciting. It’s only a guide and hardly exhaustive – I’m not telling you what to do or advising you, just offering some pointers and things to think about before taking the plunge. I’ve split this up into three parts:

Part 1: why do you want to invest and why making a plan is a good idea 

Part 2: what kind of investments might fit with your plan?

Part 3: making it happen – what kind of investment service will meet your needs?

By the end of all this you may decide that DIY investing isn’t for you and that using a financial adviser is better, or decide to take a mix and match approach combining DIY and advice together. Alternatively, you are now bored witless and so do nothing. That’s fine, you’ve made an informed decision about what works for you.

Part 1 – Why do you want to invest?

A simple question perhaps, with any number of possible answers. “To make money” isn’t enough, that’s a given.

If you have cash savings for rainy days and paid off expensive credit then you can begin the DIY investment process by asking yourself what you want to invest for. Commonly held goals are often tied into our big life events, such as a having a comfortable retirement, buying a house or funding children’s education. Also consider whether you want regular income from a lump sum or whether you intend to grow your investment over the longer term. Whatever, have a goal.

A defined investment goal at the outset helps to then think about how long it will take, your attitude to investment risk, the types of investment for you to choose, the investment service you opt for and your commitment. All before you ever invest a penny.

How much money do you need to meet your goal? in other words, how much do I need my investment to be worth at the end? Working backwards, this will show how much you need to invest, either as a lump sum, a regular smaller amount or a blend of both. Big ticket items may need starting sooner rather than later! Is this realistic or achievable? If not, what is?

There is a relationship between the potential reward and the amount of risk you are willing to take with your money, but there are no guarantees. Unless you are clairvoyant the future is uncertain and unpredictable and past performance is of little help. Sometimes you will get it wrong.

If you cannot accept any risk to your money, your returns will almost certainly be low. Take greater risks and the returns may increase, but so too could losses. How comfortable you are with taking risks with your money is a very personal matter that is unique to you. It boils down to how much you feel you can afford to lose. If you are unwilling to take any risk with your money then investing is probably not for you, whether DIY or advised.

What is your reaction to a periodic downturn in your investment value? For example, the Stock Market falls in summer 2015 spooked many investors to sell their investments and incur losses. Those that tolerated this downturn and stayed invested have found that their investments may have recovered since then, even if not to previous levels. It’s easy being right with hindsight, but that doesn’t help at the time when an investment is falling and there is no one else to act for you. Never underestimate your emotions when this happens!

Honestly exploring your personal tolerance to risk is vital because different types of investments (called asset classes) have different risks and potential rewards. Later on in the DIY process this will help you discover those investments that best match your attitude to risk. There are plenty of online resources that can help you find your personal “risk appetite.” I do not endorse them but you could try The Money Advice Service or questionnaires from Standard Life and Fidelity for starters.

There is no need to hold all your investment eggs in one basket either. Holding several different investments spreads your risk because if one of them isn’t performing it may be offset by the stronger performance of another. This is known as diversification and you can even buy collective investments that have some amount of this built-in. In the end, you will be looking at a personal best fit – how much reward your investment potentially brings over time against the risk that you could lose some, or all, of your money.

Compare the extremes of saving in cash at very low interest rates with backing a horse in the Grand National. The first is low risk, with probable low returns, but you won’t lose money, except perhaps to inflation. Horses meanwhile are obviously a high risk gamble, with possibly high returns, but only when your horse wins. (Yes, I know you could cut the horse risk a little by betting each-way, but stick with me.) Investing lies somewhere between these two extremes – but where exactly will be down to you.

It’s never too early to start investing because time is your greatest asset. The longer time you invest or, the more your eventual investment could be. Often, the younger you are when you begin the more risk you can tolerate. It’s not about callow youth, rather that there is simply more time to recover from periodic market downturns and your money is in any case invested longer.

Conversely, the cost of delaying an investment decision can make a real difference to the eventual sum at the end, so don’t keep putting it off! As you get older or near the end of the investment term, the time invested and the recovery period is inevitably reduced. For this reason, many investors change to lower risk investments at that stage to protect what they have. Investing is never a one-time decision and your plan should build in some periodic review time as your own circumstances and investment conditions change.

If investing for growth, then a minimum time horizon of at least five years is normal. Investing for income produces returns immediately but you will still need time to make sure your lump sum is not eroded.

Keep costs in mind. While DIY investing saves the cost of using a financial adviser, you are investing your time, effort and skill to replace this. Any investment will also attract charges, which are many, varied and sometimes unnecessarily hidden away. The effect of these will be a drag on your investment performance, commonly known as a “reduction in yield.” While it is reasonable to expect to pay fees, be clear about how much you pay and that the service received fairly reflects the charges made, which can vary considerably. I’ll return to this theme later when exploring the types of investments that can be made and the investment services needed to run them.

Finally, beware of investment scams. The best way is to stick with reputable and regulated investments offered by regulated investment companies and exchanges – in the UK the regulator is the FCA. The regulator is your friend. Be skeptical. Fraudsters are highly ingenious at parting investors from their cash with inventive schemes that promise fantastic returns. If it sounds too good to be true, it almost certainly is.

Next Time…

Part 2: Now you have a plan and aren’t put-off going DIY. What investments might fit in with that?

Ah, Decisions, decisions. PS, if you are clairvoyant, please get in touch…

Sage Words – 15 great investment quotes

As my little graph shows, successful investing in the stock market is notoriously hard to predict, except with the dubious value of hindsight. As Yoda once said, “uncertain, the future is.”  So sometimes I look for guidance in the scriptures, turning to those sage words uttered by successful investment guru’s.

I’ve collected together hundreds of investing quotations just for fun. They probably haven’t made me any money but I bet they have occasionally stopped me from losing it. The best quotations are timeless,  insightful and give pause for thought – and for this alone I am grateful.

This is my personal choice of an all-time top 15. Many are well-known; some are witty, some are pungent, but all are memorable.

An investment in knowledge pays the best interest.” – Benjamin Franklin

The stock market is filled with individuals who know the price of everything, but the value of nothing.” – Phillip Fisher

The four most dangerous words in investing are: ‘this time it’s different.‘” – Sir John Templeton

Beware of geeks bearing formulas.” – Warren Buffett

How many millionaires do you know who have become wealthy by investing in savings accounts?” – Robert G Allen

Investing should be like watching paint dry or watching grass grow. If you want excitement go to Las Vegas.” – Paul Samuelson

Never invest in a business you can’t understand.” – Warren Buffett

Markets can remain irrational longer than you can remain solvent.” – John Maynard Keynes

The investor’s chief problem and even his worst enemy is likely to be himself.” – Benjamin Graham

If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.” – Jack Bogle

Calling someone who trades actively in the market an investor is like calling someone who repeatedly engages in one-night stands a romantic.” – Warren Buffett

Go for a business that any idiot can run – because sooner or later, any idiot probably is going to run it.” – Peter Lynch

Rarely do more than three or four variables really count. Everything else is noise.” – Martin Whitman

If all the economists were laid end to end, they’d never reach a conclusion.” – George Bernard Shaw

One of the funny things about the stock market is that every time one person buys, another sells
and both think they are astute.” – William A. Feather

What are your favourite investing quotes? Always looking for new pithy and inspirational quotes, so please do let me know.

Apple Pay – is this the future of payments?

July 14, 2015…Apple Pay goes live in the UK with most major banks. My earlier blog post about ApplePay is still relevant – will you use it?

 

April 7, 2016, Barclays Bank finally joins the party…9 months on

The City Edge Blog

Apple Pay launched in the USA in October as a new way to pay for goods and services at point of sale, using new Apple mobile devices, (iPhone 6, 6+ and the iWatch). It’s been billed (pardon the pun) as “an entirely new class of service that will change the way you pay for things forever.“ Due for roll-out in the UK in summer 2015, will you use it?

Mobile payment is hardly new (anyone remember Google Wallet for Android)? Most people have a mobile, and most are kept “always on”. In theory, the ability to pay with just one touch is appealing, yet this hasn’t had much traction. The claim is that Apple Pay is different — easy, quick and above all, secure.

How does it work?

If a retailer has NFC (near field communication) pay-points, whip out your iPhone 6 and press the main button with Touch ID fingerprint recognition…

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