Time to Rethink Your Entire Investment Strategy?

Editor's Views: A Morningstar research paper makes uncomfortable reading, but not as uncomfortable as the proportion of women to Daves running funds

Holly Black 22 November, 2019 | 11:21AM

Editor's views

Drip-feed your money into the stock market is one of the first investment lessons you ever learn. It lessens your risk, it instils good habits, and it gets you better returns over time. Right? Wrong, apparently. 

Everything You Know is Wrong

The Morningstar data bods have been busy at work and have revealed investing a lump-sum of money is actually a better strategy than feeding your money into the market over time.

In a number of scenarios, including investing during the worst of the financial crisis and into a stagnant US economy, investing all of your money in one hit rather than drip-feeding came out on top.

This is absolutely fascinating stuff, but I think it overlooks a very important point: investing is not all about numbers on paper and fancy calculations, it is about emotion.

Our investments are the money we have worked hard for and saved over time, they are the key to our future, the difference between a comfortable retirement and having to work longer than we had hoped.

That means we panic when we see the value of our portfolio drop, and it means we may sell earlier than we perhaps should when an investment has performed well, for fear that it will fall.

It also ignores the fact that many people don’t have a lump sum to invest – for most of us, investing is a set amount that is funnelled out of our wages each month, not a chunk of cash we have sitting around going spare.

Investing is a journey, a very long one, and it should be as comfortable as possible – it shouldn’t leave you on edge, unable to sleep. And I would suggest that for many people, putting a big great wodge of their savings into the stock market on a single day would put them on edge and cause a few sleepless nights, even if we do know the long-term maths.

I can’t deny the figures; lump-sum investing clearly works on a mathematical level. But on an emotional one? The jury is still out.

A World of Daves

David is a pretty common name in the UK; you probably know one or two, maybe you even are one.

Delving back through the ONS archives shows that it was actually the most popular boy's baby name in 1954 and 1964, before slipping down to third place for the next couple of decades and ranking a lowly 32nd in 2018.

Doubtless, there are thousands of Davids and Daves out there, so it is no wonder there are a high proportion of Daves running funds in the UK.

But you know who there’s more of in the UK than Daves? Women. There are 33 million women in the UK. Yet there are more funds being run by men named Dave than there are with a woman flying solo at the helm.

I could wax lyrical about how ridiculous this situation is, but I’ll try not to; we need solutions not rants. And we need women to start recognising that investment and fund management are viable career paths that are open to them.

If I think back to my own school days, I had never heard of these things let alone considered that they might be something I could pursue. Maths was very much a “boys” subject, so were business and economics. When it came to work experience, it was a couple of lads I knew that went up to the City to cut their teeth on a trading floor while I inexplicably went and worked at a local nursery (largely chosen for the fact that I would be finished by 3pm each day, I think).

If we are going to increase the proportion of women in this industry then it has to start with schools and education, with recruitment and workplace culture, and of course among friends and family. We need to start telling all the females in our lives how much the investment industry needs them. 

Surprise Stock Picks

If I was going to pick a sustainable investment, it probably wouldn’t be a paper firm. As I understand it, we’re all supposed to be saving trees and using less of the stuff. I also wouldn’t pick a firm whose business is based around putting up whacking great mobile phone masts around the world – let’s be honest, they don’t look that nice in the countryside.

But apparently, I would be wrong. Because two companies of this very nature are being backed by the Liontrust Sustainable Team, as is a data business focusing on safe digital payments.

The evolution of sustainable investing is ever-fascinating to me and, more and more, I think we are all realising that investing with environmental, social and governance (ESG) factors in mind can open you up to some of the most interesting and exciting innovations out there.  

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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