Speculation, investment and how to close the wealth gap
Welcome to this first broadcast of Pounds shillings and sense with me Richard Leeson. This is a guide to how to invest but that is how to invest properly. It should appeal to you if you have money in the bank or building society, investments, premium bonds or if you have a general interest in investment. If you haven’t got any money behind you I will, in the next episode, give you some guidance on how to get some money to invest AND tell you why you should.
The reason I decided to run with this is because there is almost nowhere to go to find out. There’s plenty of US sites telling you lots of things about US investments, but the UK sites are more wide-ranging. The big two are Money Advice Service and Money Saving Expert, but they cover everything from pet insurance to mortgages, credit cards to pensions and divorce. This is just about investment.
In this episode we will be covering
My background, expertise and knowledgeWhat I am trying to do and not do and critically why we are doing itThe values and approach I want to work with on these podcastsAn explanation of why investment is not the same as speculation – kind of the first lesson!
1. I have over 37 years' experience in investment with the last 25 years specialising in multi-millionaires including some celebrities, some well-known business figures and even a few politicians. I’ve listened to my own advice which allowed me to retire in my mid-fifties having been financially wiped out in my early thirties by negative equity - twice!
I've helped advisers at big names in advice Including Coutts, Hargreaves Lansdown, the big four high street banks. I've been an associate examiner at the Chartered Insurance Institute marking the level 4 exams now required for advisers to be authorised.
I worked as an expert witness on investment claims for negligence between investors and banks/advisers.
I worked at major insurance companies - writing articles for the trade press, set up tax and technical teams, worked on product development and seen the process from cradle to grave.
I've lectured advisers in the UK on investment, taxation, estate planning, and financial planning. Even lectured abroad to Life Insurance Association in Luxembourg and adviser conferences in Czech Rep., U.A.E., Belgium, Spain, and Portugal.
More recently I was brought in by advisers to meet clients and explain investment
2 Why am I doing this? If more people knew more about investment the wealth gap would be smaller! Over the last ten years we saw a widening of the wealth gap – the rich seemed to get richer and the poor lagged behind. One of the biggest causes of this was where people kept their money.
People who don’t have much money tend to try to keep it as safe as possible and in doing so – they do the wrong thing! They earn far less on their investments than they should. In the last ten years the rich had chunks of money in shares and property, the not so rich had their money on deposit. Shares and property rocketed up while interest on deposits fell.
Why don’t people know more?
Lack of education in schools, as I said the internet doesn’t really help. But also…
There is a lot of bullshit in my world, the industry has created complexity to keep you in the dark and force you to rely on the "experts". There is an entire language they use which makes the subject seem impenetrable! Alpha, Beta, Sharpe Ratios, Bollinger bands, credit spreads. There are acronyms by the bucket load – RDR, ETF, DCF, ADR, APV – In fact Investopedia carries 19 pages just on acronyms and that isn’t all of them.
3. I want to avoid that. In my work I have always tried to avoid jargon so it is no wonder that one of my key values for this series is to keep it simple.
Values are important this will be honest. I want to maintain editorial independence, so I wont be taking money from investment firms to promote their causes. If there are adverts in the future that is different – but they wont influence what I tell youI have helped countless very rich people to become better off. Now I want to share what I know with you, for FREE. Please spread the word to family, friends, colleagues
Which leads me to my next value
"Money is like muck it only works if you spread it around!" (Francis Bacon) – please remember others less fortunateI believe that if you are doing OK financially it is important to remember those less well off. I want to raise the awareness of worthy causes that maybe don’t get enough airtime – the first one is at the end of this episode and will feature on my website
My aim with these podcasts is to cover the things you need to know to invest successfully. That will include in no particular order,
Why you should saveHow can you save when you believe you can’t!Understanding what you can invest inWhat to do about debtHow money worksWhat to do with a windfallHow to spot when an investment is cheap or expensiveWhy investments go up and downWhat risk is and what you can do about itWhat returns you can expectWhich investment products to use and whenLooking after your loved onesThe difference between investment and speculation
To do that I have some ideas of my own but my experience shows it is always better to hear from the audience. So please complete the contact form to let me know what you’d like to hear about.
There is a structure but I’m not a slave to itThe aim is to make this easy to understand – tell me if it isn’t!I want to be audience-led, I can change the order of what we are covering based on your viewsThis is to be shared so tell your kids/parents/friends/colleaguesIn time I am looking to have guests. I would love to record conversations about investment and maybe that could be with you?I’d also like this to be entertaining – be warned I know a lot of Dad-jokes!
So let me give you a taste now of what is to come
4. Investment and speculation
“If you are that good at investment why aren’t you a millionaire?” a question I WAS asked a few times in the early years and not one I respond to directly because…
It stems from a belief that you should “Get rich quick” from investing. That is a fiction. The only way to get rich quick from investment is to take very high risk, usually – all or nothing. That will mean, if you get it wrong, you will lose all, or nearly all, of what you have “invested".
It is not investment… it’s gambling. Just like the horses, the fruit machine or the casino. It’s speculation. That is not investment. I won’t be offering anything that gets you rich quick.
An example of speculation is Bitcoin or the other cryptocurrencies. I was meeting lots of people at the end of last year who had invested in it and been convinced they would make a fortune. They were convinced they have found a way to beat the experts and make a killing. What are the features of a cryptocurrency?
No real intrinsic valueIt is only really worth what someone pays you in the future …in another currency. Yes you can spend them, but often at high cost in terms of handling chargesThe return is based on someone in the future wanting to buy them from you for more than you paidThey began as a money laundering toolGovernments don’t like money launderingThe Bank of International Settlements (BIS), the central bank of central banks has condemned them and promised action against themThey are electronic bearer shares – a bearer share is a piece of paper which can be cashed in for money by whoever has it in their hand. In that sense a cryptocurrency is like online cash and simply having it sit on your hard drive doesn’t make it safeIn the last year Bitcoin has more than halved in value
If it sounds too good to be true it almost certainly is!!
What is investment then?
It is the considered use of money to gain a profit/income in the future. Different investments come with different risks and returns.
Generally the longer you tie up your money the better the return you get, illustrated by deposit accounts,
Fixed Rate Accounts Jan 2019
Charter Savings Bank – 2.03% for 1yr
Investec – 2.35% for 2yrs
ICICI Bank UK – 2.4% for 3yrs
You get more return the longer you commit to tying up your money.
You also get more return for more risk. Buying shares, for example, over the long term you would expect to receive higher returns from shares than from deposits. In the world of investment you look to be rewarded for taking higher risks.
But isn’t that speculation/gambling? No – you cannot lose all your money! Not if you invest sensibly. Let me put it another way – you have to work really hard to lose all your money in shares!
The stock market goes up and down every day. If you buy one share for one day that is speculation – a bit of a gamble. You could lose all your money if that company goes bust and there are no assets to be distributed. But if you buy, say the top 100 shares and hold them for ten years or more they are not all going to go bust. Well they might ... but what would the world look like then?
RBS/HSBC/Lloyds/Barclays all bust with no value, Shell/BP bust – no one wants their oilfields, petrol stations, offices. Vodafone are gone and no one wants their network. Prudential, Legal and General, both bust with no value – despite levying management charges on billions of pounds of investments. You get the picture? “The world has gone to hell in a handcart”.
(If you really believe that is a risk you should invest in four things which I will tell you about in a minute at the end).
What you are aiming to do with investment is to get a better return than you currently get. Over time that can build up substantially. Let me give you some example numbers
If you have £1000 in the building society today you might be getting as little as 0.5% interest a year. That means in ten years you will have £1051. Better than nothing but hardly life–changing.
If you put that same sum in to an account that pays 2% a year you will have £1,219 – £168 more!!
But if you invest it in assets that can give you a 7% return each year it would be worth £1967 nearly double! Right now those kind of returns are achievable.
Albert Einstein reportedly called compound interest “the eighth wonder of the world, he who understands it, earns it; he who doesn't, pays it.”
In the coming episodes I’ll be explaining the different investments out there and what you need to know. But next time I will be looking at why you should have a nest egg and how to build one.
I said earlier, a core value is helping others.
I want to briefly mention Mary's Meals. It is a Scottish-based charity that feeds over 1.25m children every school day in the poorest countries. They spend 93% of donations on those kids – way above the average of major charities. By feeding children at school they offer the parents one less mouth to feed and give the kids a chance of an education – one of the best ways of moving out of poverty. Click here to check out their work and for more in depth info check out Child 31 on You Tube.
What were the four investments if the world goes to hell in a handcart?
An allotment, a shovel, seed vegetables and….first of all…a shotgun! No joke!