Three weeks ago I wrote about why we should probably all calm down about the whole Brexit situation (I would have written again sooner but there has been the small matter of getting married and snatching a one-week ‘mini-moon’ since my last email).
Aside from including various evidence in that piece that the UK is in no way a ‘busted flush’, my basic thesis was and still is that human ingenuity will be far more important for your prosperity in the years ahead than the machinations of Westminster or Brussels.
Scientific progress will continue to be far more important for improving most of our lives than politics, but there is another related factor that will maximise your chances of benefitting from this progress: The possession of real financial literacy.
I signed off by saying that in my next article I would write about how important it is to focus on your own ‘micro’ situation (the stuff you can actually influence) and stop worrying about the ‘macro’ situation (stuff that you can’t do anything about).
My main point is that it has never been easier to do a great job with the former no matter what is happening with the latter.
Today, the great majority of us, in the developed world at least, can arrange our lives to minimise the impact of external or ‘macro’ events that are outside of our control on our wealth – and, by extension, our health, happiness and peace of mind.
Today, like never before, we have the tools at our disposal to live a great life almost regardless of what is going on in the news, but key to this, arguably above any other skill, is acquiring real financial literacy and then acting upon it.
There is a quote I love:
“To do good, you must first do well…”
(I actually can’t find where it comes from – it may be Biblical or possibly something Machiavelli wrote but I like it nevertheless). It is usually something people say in connection with philanthropy or high level business – with the basic gist being that you have much more power to effect real change and actually do something once you’ve acquired the financial wherewithal to do so.
With a little tweak, I think the idea can also be applied to each of us as individuals at a more basic level: If you do well, by which I mean you get your financial house in order such that you can be confident of becoming genuinely comfortable at some point in your life, you can then do good – by which I mean, live a good and happy life and help others around you do the same.
There is no more important life skill for this kind of ‘doing well’ than real financial literacy. If you are able to grow your money no matter what happens in the news, then life really does become a great deal less stressful and you can get on with far more important and enjoyable things, whatever they may be (i.e. ‘do good’).
But is this possible? So many people have had a sufficiently bad experience with investment and with the financial services industry more generally that they might be forgiven for thinking that the whole idea of growing your money ‘no matter what happens’ is pure moonshine.
I would contend that the reason so many people feel this way is that finance is pretty much the only thing that most human beings have some kind of serious involvement with before they actually learn anything about it.
I’ve said it before but none of us think that it is OK to drive a car on public roads before we have learned how to drive properly.
We don’t try to play chess before we have learned the rules and how each of the pieces move, yet when it comes to finance, uniquely, people end up borrowing money, buying property and / or having pension and other investment products without understanding the rules or how any of these ‘pieces move’.
Is it any surprise that people get themselves mired in debt or so often suffer from expensive and poorly performing pension and investment products if we don’t actually understand what a share or a bond is or even what price we are paying for such products (financial products are pretty much the only ones I can think of where people literally don’t understand or ask how much they cost)?
The really good news is that, for the great majority of people, there is no need to understand in any great detail how these things all work (phew!). You need only understand one basic idea – and that is that if you end up owning all major asset classes in all major geographies, over time, you should see your money grow through thick and thin. The richest people in the world have invested like this for centuries (one of the main reasons they’re the richest people in the world) but it is only relatively recent past that mere mortals have been able to invest in basically the same way.
Evidence that this works
Back in March, I wrote about how someone close to Plain English Finance had sent me an enthusiastic email to express his delight that pension fund had increased by 18.51% since implementing just this kind of “own the world” strategy.
It isn’t hard to argue that 2016 has thrown us a few curve balls since that email, with Brexit, a horrible run of terrorist attacks and plenty else besides, so what has happened to his “own the world” pension investments since then?
Well, I am delighted to report that this person’s pension fund is now up no less than 35.75% despite the seemingly endless negativity and panic seen in our daily news. In the same sort of time frame other folk have got in touch to say:
- “Andy. My portfolio, has barely taken a hit since Brexit, I've noticed. In fact, it's improved!”
- “Thanks to your advice… my portfolio went up 10% despite massive losses on markets. Reading "Own the World" was one of my best decisions ever!”
- “Andy. I'm up about £15k on my pension since I last looked a month ago - so sticking to gold (and having plenty of holdings external to the UK and main markets) has helped…” and then from the same person two weeks later: “And up a further £10k since I wrote... anyway, I won't swamp you with messages - but thanks for the solid advice!”
There is no guarantee that this will continue, but the evidence of many decades is that this investment approach, if implemented properly, will generally achieve high single digit to low double digit rates of return over time and through the economic cycle. This is obviously a multiple of prevailing interest rates and more than enough for most of us to achieve our financial goals.