The Evidence-Based Investor

Author Archives: TEBI

  1. Financial advertising can seriously harm your wealth

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    It’s hard to escape financial advertising. The biggest brands seem to get their name all over the place, from the side of taxi cabs to train station billboards. They sponsor arts and sporting events and take out full-page adverts in newspapers and magazines.

    There’s a reason why banks and fund management companies spend so heavily on advertising: it’s actually very effective. Why? Well, people are naturally anxious about money. Many find the idea of the financial markets quite scary. They’re bombarded with information, not least on social media, and they’re confused by all the different options. So they derive comfort and security from large, familiar brands, and they’re especially receptive to simple marketing messages that help them make decisions.

    Even if you consider yourself a relatively sophisticated consumer, you may be more susceptible to financial advertising than you think. The reason is that financial advertisers are very clever at exploiting our vulnerabilities and lack of understanding. They also know just the right buttons to press to make us sit up and take notice.

    But financial advertising can seriously damage your wealth, so you need to stay on your guard. Here are five ways in particular in which financial advertisers seek to influence investors’ decision-making.

    READ THE FULL ARTICLE HERE

     

    PREVIOUSLY ON TEBI

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    FIND AN ADVISER

    The evidence is clear that you are far more likely to achieve your financial goals if you use an adviser and have a financial plan.

    That’s why we offer a service called Find an Adviser.

    Wherever they are in the world, we will put TEBI readers in contact with an adviser in their area (or at least in their country) whom we know personally, who shares our evidence-based investment philosophy and who we feel is best able to help them. If we don’t know of anyone suitable we will say.

    We’re charging advisers a small fee for each successful referral, but you will pay no more than you would if you contacted the adviser directly.

    Need help? Click here.

     

    © The Evidence-Based Investor MMXXIV

     

     

     

  2. Why do active managers struggle to replicate past success?

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    In evaluating fund performance, it’s extremely hard to distinguish genuine, repeatable skill from random chance. Investors are constantly shown examples of funds whose managers appear to have demonstrated superior expertise. But we forget one very important thing: at any one time, there are so many funds to choose from that there will almost certainly be some active managers who appear to have exhibited skill. 

     

    Most sports fans can think of a coach who succeeded with one team but then flopped with another. Managing an active investment fund is not dissimilar to managing a sports team. No matter how well-known you are, the fact that you’ve succeeded in the past is no guarantee you’ll do so in future.

    In his book Index Funds: The 12-Step Recovery Program for Active Investors, Mark Hebner uses the analogy of movie sequels.

    “Men in Black II, Ocean’s Twelve and The Hangover, Part II,” he writes. “All of these movies have one thing in common: they were abysmal sequels to blockbuster movies. We long to regenerate scenarios when everything comes together perfectly and the stars align, but that kind of success is rarely duplicated.

    “As hard as it is to (do) in the film world, it is even more difficult for these all-star money managers to duplicate their past success.”

    READ THE FULL ARTICLE HERE

     

    PREVIOUSLY ON TEBI

    Here are some other recent posts you may have missed:

    Five financial wellbeing tips everyone should follow 

    Three takeaways from the work of Eugene Fama

    Do you need to adjust your expectations?

     

    TEBI ON YOUTUBE

    Have you visited the TEBI YouTube channel lately? There’s already a wide selection of high-quality videos on there. Why not subscribe and be one of the first to see our latest content? You’ll also find our videos on Instagram and TikTok.

     

    © The Evidence-Based Investor MMXXIV

     

  3. Don’t take investment advice from politicians

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    Investing is a classic example of an activity which everyone seems keen to give an opinion on. The problem is that everyone has their own reasons for expressing the views that they do, and, almost invariably, there’s an element of self-interest involved in the investment advice that people give.

    So, for example, the guy in the pub who’s made a killing by investing, say, in Bitcoin or Nvidia shares and keeps saying you should do the same, may just be showing off. Or perhaps he’s waiting for the price to rise further before cashing in and therefore has a vested interest in talking the investment up.

    Media outlets that tend to feature active funds rather than cheaper passive alternatives have their own motives too. Active investing makes for better stories — and, crucially, more clicks — than indexing. Also, advertising by active fund managers largely pays for journalists’ salaries.

    But what if it’s a politician who’s suggesting you invest your money in a particular way? How much credibility should we give to what they say?

    In recent months, both of the major parties have been keen to promote investing in UK stocks. The Conservative government announced plans in the March budget for a new “UK ISA”, which would have an additional £5,000 allowance, on top of the existing £20,000 allowance across other types of ISAs. The goal is to encourage individuals to invest in UK assets. Whether or not the idea ever comes to fruition, Labour politicians have been broadly supportive.

    The former Pensions Minister Ros Altmann has even suggested that investors should be made to invest 25% of their retirement savings in UK companies. By “neglecting” UK equities, she says, investors have “pushed valuations to exceptionally cheap levels.” Making people buy more British shares, she argues, would be a “win-win” for the country and for investors.

    READ THE FULL ARTICLE HERE

     

    PREVIOUSLY ON TEBI

    Here are some other recent posts you may have missed:

    Surviving ten years is a challenge for active funds

    A simple formula for financial security

    Diversify, diversify, diversify

     

    HAVE YOU READ THIS BOOK?

    Robin Powell and Jonathan Hollow have been friends since childhood and share a passion for helping people understand the world of money, savings, pensions and investments.

    Now they’ve authored a book called How to Fund the Life You Want, which explains in plain English what you need to know to pay for the life you want to lead.

    The book is published by Bloomsbury and is primarily written for a UK audience.

    It’s available to buy on Amazon, on Bookshop.org, and in all good bookshops. There’s an eBook and an audio book version as well.




     

    © The Evidence-Based Investor MMXXIV

     

     

  4. Is Vanguard a sensible option for UK investors?

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    Vanguard is one of the most successful fund management companies in the world. Based in Pennsylvania, it’s starting to build a large customer base in Europe, and particularly the UK. But is Vanguard a sensible option for people looking for a reliable asset manager to invest with?

     

    The US-based investment giant Vanguard has only been operating in this country since 2009, but it has already established itself as one of the major players in UK financial services.

    Vanguard currently has around 635,000 UK customers with approximately £24 billion of savings, and about 50 million customers the world, mainly in North America. You may be familiar with its “V for Value” advertising campaign, which highlights its commitment to delivering value through low-cost investment options.

    So how good a company is Vanguard? And is it a sensible choice if you’re looking for a firm to invest your money with?

    There is certainly a great deal to admire about Vanguard. Its late founder, Jack Bogle, was an outspoken advocate for better investment outcomes. He was a passionate believer in putting customers first, reducing fees, greater transparency and investor education.

    Bogle is best remembered as a champion of low-cost index funds. “The winning formula for success in investing,” he wrote in The Little Book of Common Sense Investing, “is owning the entire stock market through an index fund, and then doing nothing. Just stay the course.”

    But despite its close association with indexing, first and foremost Vanguard is — and indeed always has been — a provider of actively managed funds. So are its active funds worth investing in?

    READ THE FULL ARTICLE HERE

     

    PREVIOUSLY ON TEBI

    Here are some other recent posts you may have missed:

    What did Benjamin Graham think about market timing?

    Investors look for patterns that don’t exist

    Learn to tame your inner chimp

     

    FIND AN ADVISER

    The evidence is clear that you are far more likely to achieve your financial goals if you use an adviser and have a financial plan.

    That’s why we offer a service called Find an Adviser.

    Wherever they are in the world, we will put TEBI readers in contact with an adviser in their area (or at least in their country) whom we know personally, who shares our evidence-based investment philosophy and who we feel is best able to help them. If we don’t know of anyone suitable we will say.

    We’re charging advisers a small fee for each successful referral, but you will pay no more than you would if you contacted the adviser directly.

    Need help? Click here.

     

    © The Evidence-Based Investor MMXXIV

     

     

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