In today’s fast-paced world, financial stress has become an all-too-common companion for many. But there’s hope on the horizon: a comprehensive financial plan can be your beacon of light in the stormy seas of financial anxiety.

The Hidden Costs of Financial Stress

Financial worries extend far beyond your bank balance. They can:

– Disrupt your sleep patterns
– Lead to weight gain
– Trigger depression
– Strain relationships
– Diminish overall life quality

It’s crucial to remember that life offers much more than monetary concerns. Your well-being should always take precedence.

Crafting Your Financial Lifeline

A detailed financial plan serves as more than just a budget—it’s a roadmap to financial serenity. Here’s how it works:

1. Comprehensive Analysis: We dive deep into your financial landscape, examining:
– Income streams
– Expenditure patterns
– Asset portfolio
– Outstanding liabilities

2. Cash Flow Projections: These forecasts provide a clear view of your financial trajectory, empowering you to make informed decisions.

3. Tailored Strategies: Based on our analysis, we develop personalised solutions, which may include:

– A robust spending plan to keep you within budget
– Techniques to boost your savings
– Accelerated debt repayment strategies (remember, the word ‘mortgage’ contains the French word for death—let’s eliminate it quickly!)
– Retirement planning to ensure you can enjoy life without financial fears

From Plan to Action

A plan is only effective when put into action. That’s why we focus on creating simple, achievable steps to help you reach your financial goals. Remember, even the largest tasks become manageable when broken down into smaller parts.

Adapting to Life’s Changes

Life is unpredictable, and your financial plan should be flexible enough to adapt. Regular reviews and adjustments ensure your plan remains relevant and effective, no matter what life throws your way.

The Value of Professional Guidance

A skilled financial planner can offer invaluable insights, drawing from their experience to help you navigate your unique financial situation. However, be cautious of advisers who seem more interested in your money than in understanding you as an individual.

A Word of Caution

If you’re unsure about how much is “enough” for your financial needs, you likely don’t have a comprehensive financial plan yet. It’s time to change that.

In Times of Crisis

For those facing severe financial difficulties, resources are available:

– National Debtline: https://nationaldebtline.org/
– NHS Mental Health Advice: https://www.nhs.uk/mental-health/advice-for-life-situations-and-events/how-to-cope-with-financial-worries/

Remember, financial worries are rarely unique. With the right guidance and a well-structured plan, you can overcome these challenges and achieve financial peace of mind. Start your journey towards financial freedom today—your future self will thank you.

Autumn Budget 2024: Key Changes for Financial Planning

The Chancellor recently delivered the Autumn Budget 2024, introducing several significant changes that may impact your financial planning. As your trusted financial advisers, we want to keep you informed about the most relevant updates and how they might affect you.

Capital Gains Tax Increases

One of the most notable changes is the increase in Capital Gains Tax (CGT) rates. From 30 October 2024:

– The basic rate of CGT will rise from 10% to 18%
– The higher rate will increase from 20% to 24%

These changes make tax-efficient investing even more crucial. Maximising your ISA and pension contributions can help shelter your investments from CGT. For those with additional funds to invest, we may need to review your investment strategy to ensure it remains tax-efficient.

Inheritance Tax Changes

While the inheritance tax nil-rate bands will remain frozen until April 2030, there are significant changes coming:

– From 6 April 2027, unused pension funds and death benefits from pensions will be included in your estate for inheritance tax purposes.
– A new £1 million allowance will apply to the combined value of property qualifying for 100% business property relief and agricultural property relief from 6 April 2026.

These changes may require us to revisit your estate planning strategy, especially if you have substantial pension savings or business/agricultural assets.

Pensions and Retirement Planning

The State Pension Triple Lock will be maintained, with the basic and new State Pension increasing by 4.1% from April 2025. However, the inclusion of pension funds in inheritance tax calculations from 2027 may affect how we approach your retirement planning.

National Insurance Contributions

Employers will see an increase in their National Insurance contributions from 13.8% to 15% starting 6 April 2025. This change primarily affects business owners and may influence decisions around remuneration structures.

What This Means for You

These changes underscore the importance of regular financial reviews and proactive planning. Depending on your personal circumstances, we may need to adjust your financial strategy to:

1. Optimise your investment approach in light of the CGT changes
2. Review your estate planning, especially regarding pensions and business assets
3. Reassess your retirement income strategy
4. For business owners, consider the most tax-efficient ways to draw income

Next Steps

As always, we’re here to help you navigate these changes and ensure your financial plan remains aligned with your goals. If you have any questions or concerns about how the Autumn Budget might affect you, please don’t hesitate to reach out. We recommend scheduling a review meeting to discuss your personal situation in more detail.

Remember, financial planning is an ongoing process, and staying informed and adaptable is key to long-term success. We look forward to helping you make the most of your finances in light of these new developments.

In the complex world of personal finance, we often believe we’re making rational, well-informed decisions. However, research in behavioural economics reveals that our choices are frequently influenced by cognitive biases – mental shortcuts that can lead us astray. Understanding these biases is crucial for making better financial decisions and securing our long-term financial well-being.

The Present Bias: Living for Today at Tomorrow’s Expense

One of the most pervasive biases affecting our financial choices is the present bias. This tendency to prioritise immediate rewards over future benefits can significantly impact our saving and spending habits.

For instance, we might choose to splurge on a luxury item today rather than contribute to our pension fund, even though we know the latter is more beneficial in the long run. This bias often leads to inadequate savings, accumulation of high-interest debt, and underinvestment in long-term financial goals.

To combat present bias, consider:

• Automating your savings to remove the temptation of immediate spending
• Visualising your future self to make long-term goals more tangible
• Implementing a ‘cooling-off’ period before making significant purchases

The Anchoring Effect: When First Impressions Skew Our Judgement

Anchoring bias occurs when we rely too heavily on the first piece of information we encounter when making decisions.

In financial contexts, this could mean fixating on a stock’s past performance or a property’s initial asking price, rather than objectively assessing its current value.To mitigate anchoring bias:

• Seek out multiple sources of information before making financial decisions
• Regularly reassess your investments and financial strategies
• Be wary of arbitrary ‘anchor’ points, such as round numbers or historical highs

Overconfidence: The Peril of Thinking We Know More Than We Do

Overconfidence bias can lead investors to overestimate their knowledge and ability to predict market movements.

This often results in excessive trading, under-diversification, and taking on more risk than is prudent.To keep overconfidence in check:

• Maintain a diversified portfolio to spread risk
• Keep a record of your investment decisions and their outcomes to learn from past mistakes
• Seek advice from financial professionals to gain alternative perspectives

Loss Aversion: When Fear of Losing Outweighs Potential Gains

Studies show that the pain of losing is psychologically about twice as powerful as the pleasure of gaining.

This bias can lead to overly conservative investment strategies or holding onto losing investments for too long.To manage loss aversion:

• Focus on long-term financial goals rather than short-term market fluctuations
• Reframe losses as learning opportunities
• Use stop-loss orders to automatically sell investments if they drop below a certain level

The Power of Awareness

By recognising these biases, we can take steps to counteract their influence on our financial decisions. Remember, the goal isn’t to eliminate these biases entirely – they’re a part of human nature. Instead, we should strive to be aware of their presence and develop strategies to mitigate their impact.Consider working with a financial planner who can provide an objective perspective and help you navigate these cognitive pitfalls. They can assist in creating a robust financial plan that accounts for your individual circumstances and goals while helping you avoid common behavioural traps.In the end, the most powerful tool in your financial arsenal is self-awareness. By understanding the biases that shape our decisions, we can make more informed choices, leading to better financial outcomes and greater peace of mind.

In today’s fast-paced world, the relentless pursuit of wealth often overshadows what truly matters in life. At Oak Four, we believe it’s time to challenge the notion that ‘more money’ should be your ultimate goal. Instead, we invite you to explore the concept of ‘enough’ and how it can lead to a more fulfilling and balanced life.

The Evolution of Financial Needs

As we progress through our careers, our financial priorities naturally shift. In the early stages, we focus on meeting basic needs – food, shelter, and security. As income grows, so does our appetite for ‘wants’. This transition is where many find themselves at a crossroads.

From Necessities to Luxuries
The journey from covering essentials to indulging in luxuries is a common one. However, it’s crucial to pause and reflect: Are these additional purchases bringing genuine happiness, or are they simply feeding an endless cycle of consumption?

The Pitfall of Lifestyle Inflation

One of the most significant challenges in personal finance is lifestyle inflation. As income increases, there’s a natural tendency to upgrade our lifestyle proportionally. This can lead to a situation where, despite earning more, we find ourselves no better off financially.

Breaking the Cycle
At Oak Four, we’ve witnessed clients who’ve successfully broken free from this cycle. By consciously evaluating their spending and aligning it with their core values, they’ve achieved a sense of contentment that no amount of material excess could provide.

Redefining ‘More’ as ‘Meaningful’

A shift we’ve observed among our clients is the move from accumulating possessions to creating lasting memories. This change in focus often leads to more satisfying and impactful uses of wealth.

Experiences Over Things
Investing in experiences, particularly those shared with loved ones, often yields greater long-term satisfaction than material purchases. This approach not only enriches your life but can also lead to more prudent financial decisions.

Finding Your ‘Enough’

The concept of ‘enough’ is deeply personal and varies for each individual. It’s about striking a balance between enjoying life today and securing your future.

Practical Steps to Define ‘Enough’

1. Identify your core values and priorities
2. Assess your current spending patterns
3. Envision your ideal lifestyle, both present and future
4. Create a financial plan that aligns with this vision

The Role of Financial Planning

At Oak Four, our role extends beyond managing investments. We aim to be your partners in crafting a life that’s both financially secure and personally fulfilling.

Balancing Today and Tomorrow
Our comprehensive planning approach helps you make informed decisions about trade-offs between current enjoyment and future security. We believe that with the right guidance, you can achieve a life of ‘enough’ that’s richer and more satisfying than you might have imagined.

Embracing a New Perspective

Shifting from the pursuit of ‘more’ to the contentment of ‘enough’ is a journey. It requires introspection, honesty, and sometimes, difficult choices. However, the reward – a life of purpose, balance, and financial peace – is invaluable.At Oak Four, we’re committed to helping you navigate this path. We invite you to start a conversation with us about redefining your financial goals and finding your personal ‘enough’. Together, we can create a future where financial success is measured not just in pounds, but in the quality of life and the legacy you create.

By David Booth, Executive Chairman and Founder, Dimensional Fund Advisors

We are living in a time of extreme uncertainty and the anxiety that comes along with it. Against the backdrop of war, humanitarian crisis, and economic hardship, it’s natural to wonder what effect these world events will have on our long-term investment performance.

While these challenges certainly warrant our attention and deep concern, they don’t have to be a reason to panic about markets when you’re focused on long-term investing.

Imagine it’s 25 years ago, 1997:

• J.K. Rowling just published the first Harry Potter book.
• General Motors is releasing the EV1, an electric car with a range of 60 miles.
• The internet is in its infancy, Y2K looms, and everyone is worried about the Russian financial crisis.

A stranger offers to tell you what’s going to happen over the course of the next 25 years. Here’s the big question: Would you invest in the stock market knowing the following events were going to happen? And could you stay invested?

• Asian contagion
• Russian default
• Tech collapse
• 9/11
• Stocks’ “lost decade”
• Great Recession
• Global pandemic
• Second Russian default

With everything I just mentioned, what would you have done? Gotten into the market? Gotten out? Increased your equity holdings? Decreased them?

Well, let’s look at what happened.

From January of 1997 to December of 2021, the US stock market returned, on average, 9.8% a year.¹

A dollar invested at the beginning of the period would be worth about $10.25 at the end of the period.²

These returns are very much in line with what returns have been over the history of the stock market. How can that be? The market is doing its job. It’s science.

Investing in markets is uncertain. The role of markets is to price in that uncertainty. There were a lot of negative surprises over the past 25 years, but there were a lot of positive ones as well. The net result was a stock market return that seems very reasonable, even generous. It’s a tribute to human ingenuity that when negative forces pop up, people and companies respond and mobilize to get things back on track.

Human ingenuity created incredible innovations over the past 25 years. Plenty of things went wrong, but plenty of things went right. There’s always opportunity out there. Think about how different life is from the way it was in 1999: the way we work, the way we communicate, the way we live. For example, the gross domestic product of the US in 1997 was $8.6 trillion and grew to $23 trillion in 2021. (Read more about the merits of investing in innovation.)

I am an eternal optimist, because I believe in people. I have an unshakable faith in human beings’ ability to deal with tough times. In 1997, few would have forecast a nearly 10% average return for the stock market. But that remarkable return was available to anyone who could open an investment account, buy a broad-market portfolio, and let the market do its job.

Investing in the stock market is always uncertain. Uncertainty never goes away. If it did, there wouldn’t be a stock market. It’s because of uncertainty that we have a positive premium when investing in stocks vs. relatively riskless assets. In my opinion, reaping the benefits of the stock market requires being a long-term investor.

By investing in a market portfolio, you’re not trying to figure out which stocks are going to thrive, and which aren’t going to be able to recover. You’re betting on human ingenuity to solve problems.

The pandemic was a big blow to the economy. But people, companies and markets adapt. That’s my worldview. Whatever the next blow we face, I have faith that we will meet the challenge in ways we can’t forecast.

I would never try to predict what might happen in the next 25 years. But I do believe the best investment strategy going forward is to keep in mind the lesson learned from that stranger back in 1997: Don’t panic. Invest for the long term.

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FOOTNOTES

1. In US dollars. S&P 500 Index annual returns 1997–2021. S&P data © 2022 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
2. Data presented for the growth of $1 are hypothetical and assume reinvestment of income and no transaction costs or taxes. This value is for educational purposes only and is not indicative of any investment.

The history books are littered with tales of people who have come to a sticky end after inheriting vast fortunes from their parents. Clarissa Dickson Wright, Woolworth heiress Barbara Hutton and the 7th Marquess of Bristol, to name but three.

Various studies show that 70% of family wealth fails to last more than two generations, with 90% of it vanishing after the third.

With these examples, it’s hardly surprising that many extremely rich and financially astute people think long and hard before making their children the sole beneficiaries of their fortune.

Warren Buffett (current net worth: $117 billion) has said, “I want to give my kids enough so that they feel they could do anything, but not so much that they could do nothing.”

Warren’s friend Bill Gates is reportedly leaving his three children a mere $10 million dollars each. I’m sure most of us would take that — but when you consider the Gates fortune is over $130 billion, it’s a drop in the ocean.

It’s understandable. The last thing any of us want is our kids losing the sense of purpose and reason-to-get-up-in-the-morning that working for a living gives us.

You may not be in Gates/Buffett territory, but many homeowners who consider themselves only averagely wealthy are sitting on a sizeable financial asset in the shape of their unmortgaged property. Provided they don’t need the equity to finance their care in old age, some will be turning their children or grandchildren into property millionaires when they die.

If you’re in the fortunate position of knowing you will be handing on a decent chunk of wealth to the next generation, how can you help them avoid the fate of so many ‘poor little rich kids’?

The aim is to encourage them not only to enjoy the fruit of your labours but also use it responsibly, to benefit themselves and others, and conserve and grow it for their own heirs, too.

Five tips to keep wealth in the family

Strangely enough, successful inheritance has very little to do with how much money you leave. It’s more about your children having the character, financial nous and understanding NOT to blow it, but to spend and save it in such a way that they can enjoy it sustainably.

Preparing the next generation for the responsibility of inheritance is one of the most valuable things you can do as a wealthy parent. Don’t wait until they are old enough to lose it all like newly-minted lottery winners.

1.   Start talking about money

You may have been taught that it’s vulgar to discuss money, but that’s one lesson you can ignore. Make your children aware that they will eventually inherit the house, the business and other sources of their family wealth. Stress, in an age-appropriate way, the responsibility that comes with financial good fortune.

If all goes according to plan, they’ll be well into middle age before they need to worry about it. But tragedy can strike at any time, leaving young adults woefully unprepared to handle life changing amounts of money, and without the protection they would be afforded if they were still children.

Make sure your inheritors know how you are planning to pass on your wealth. You may be planning to divide it all up equally, so each of your children receives an equal part of your wealth. Or you may be leaving a chunk of it to a charity, a distant relative or family friend. You don’t want your kids finding that out only when they sit down with the executor after your funeral.

A 20-year study by The Williams Group in the US found that a lack of honest conversations was the main cause of family wealth failing to endure — i.e. dissipating within two or three generations, along with family relationships.

Any fan of the TV series Succession will understand how this can affect the family dynamic.

2.   Embed family values

Your inheritance should be about more than money. Whether you built your wealth yourself or inherited a large part of it from previous generations, you won’t want your heirs using it to finance dodgy ventures or support causes which are totally against your values.

This doesn’t mean laying down a list of rules. Talking to your kids when they’re young about what is important in life — caring for family, kindness, charity, looking after those less fortunate than themselves, working hard — is something that all parents can do, regardless of their net worth.

Hopefully, those values will give them a good foundation for a successful life as an adult, as well as provide a basis for dealing with their inheritance.

3. Help them understand how money works

Financial literacy is woefully inadequate in the younger generation (it’s not so hot with many older people, too).

Unless they’re studying Further Maths at A level, not many teenagers will grasp how compound interest works — yet it’s a vital concept in growing money via investing as well as owing money on credit cards. The vast majority of young people will encounter one or other of these activities as they get older.

Teaching children how to budget and delay spending gives them a valuable skill that can help prevent financial disasters later in life.

Pocket money could be split into three different pots – one to spend now (sweets, comics, small toys, for example); one to save for something later on (perhaps an expensive computer game, a pair of trainers or spending money for holidays); and one for giving (such as buying birthday presents for family and friends, or giving to charity).

When they’re a bit older, perhaps you could add up the money you consider it reasonable to spend on their mobile phone, travel and entertainment, put it in their account and let them manage it themselves.

Encourage them to get a part-time job when they’re old enough and make the connection between working and having money to spend.

4. Ease them into it

It’s a good idea to get your kids into the investing habit before they start their working lives. One way is to start an investment account as a nest egg in their late teens. They can make the investment decisions, and you can match the returns for a few years. This will demonstrate the value of compound interest and also the cost of taking all the money out and spending it.

As your kids get older, you could gradually increase their involvement in the management of the family wealth and the decisions you take. If you envisage them taking over the family business, perhaps let them attend some of the board meetings so they understand how the business is run. When it’s their turn to take over, it won’t be such a shock to the system.

5. Bring in the experts

As soon as your kids are ready to take responsibility for their own money, introduce them to your financial adviser or wealth manager and get them involved in the rudiments of estate planning. Let them sit in on the annual review meetings so they can see the value of the estate and appreciate how it has grown and how your investment decisions have affected the overall value.

Not only will this make them part of the future, it will also back up the advice and education you have been giving them up to now. If a professional agrees with mum and dad, you must be doing something right!

Have you ever been contacted by a business selling an investment ‘opportunity’ guaranteeing returns way above those anyone else can promise?

One such firm, Exmount Construction, has just been wound up by the high court, with over £1 million of hopeful investors’ money missing, unlikely to be seen again.

As the Insolvency Service investigator put it: “In reality, this was a scam and we urge potential investors to carry out due diligence to ensure they use their funds on legitimate investments.”

We can all differentiate between a real investment opportunity and an invitation from a former US ambassador to ‘park’ $2 million from a Nigerian prince in our bank account, can’t we?

(An actual ‘offer’ received by one of the Oak Four team last week. No doubt you’ve had something similar in the past.)

The truth is some of the most sophisticated investing scams are pretty difficult to spot at first glance. Glossy, professionally produced brochures, website addresses that look like the real thing, a legit-looking logo, a reassuring voice on the phone… it’s easy to understand how people fall victim, especially with the torrent of ‘information’ arriving in our inbox daily.

What to look out for

The first thing to remember? If it looks too good to be true, it probably is.

Is it really likely that one company could offer you 5% more per annum than literally everybody else?

Warning bells should start ringing if any of the following applies:

• They contact you out of the blue (e.g., an unsolicited email or phone call)
• They keep contacting you if you don’t respond
• The put pressure on you if you do talk to them – for example telling you the offer only lasts another 24 hours – and don’t give you time to do any due diligence
• They guarantee a return that’s significantly higher than cash deposits. Returns like that may be possible, if unlikely, but certainly cannot be guaranteed.

How to check them out

• Is it regulated by the Financial Conduct Authority (FCA)? If it’s not AND it seems too good to be true, that’s a huge red flag. FCA regulation is a sign that you, the consumer, are protected and can trust the business to look after your money and your financial data, and give you sound financial advice.
• When did the company start trading? Search the Companies House database to see if you can find any details. If the company isn’t listed, stop searching.
• Who owns the company and who are the directors? If the business is listed on Companies House you’ll be able see the list of directors along with any other current or previous directorships they hold. You can do a Google search on the names of the directors to see if they have been involved in any dodgy companies beforehand. If it’s hard to work out who ultimately owns the company, don’t trust it.

These are simple steps to take and should flag up dodgy businesses before you get involved with them.

Just ask

If you’re not sure, ask us!

A few years ago, several Oak Four clients started mentioning an investment they’d come across: a parking scheme at Glasgow Airport. Invest, and you’d own a piece of the car park and would benefit from returns of around 8-10% per annum.

We searched Companies House, googled the company name and the names of the directors, and found out they had been involved in investing scams before. They simply set up new companies with glossy brochures to lure clients in. They would then take the money and, a few months later, the business would disappear along with the investors’ cash.

Luckily we were able to stop a few clients falling for this ‘investment’, along with others promising similar returns along the same lines.

The internet is your friend. Although it’s frequently the means by which investing scams gain traction, it’s also where you can track down the truth.

Check out our recent blog about the power of fake news for more thoughts along these lines.

Oak Four, and other financial advisers who take a similar approach to portfolio management, follow an evidence-based approach to investing our clients’ assets.

It used to be called ‘passive investing’ because the basic principle, once your portfolio had been designed with a view to meeting your personal goals and constructed to match your appetite for risk, was effectively, ‘let the markets do the heavy lifting; relax and capture the rewards.’

Increasingly, for many of our clients – and especially the younger members of their families who will benefit from their investments in the long run – meeting personal goals is not enough.

They are concerned about environmental and social impact issues, like climate change, gender equality, human rights, ethical supply chains and fair treatment of the workforce.

They don’t want to prop up businesses whose record in these areas falls short of acceptable standards. But they still want to take an evidence-based approach to capture the returns of the market and meet their goals.

Is that asking for the impossible?

Evidence-based investing changes when the evidence changes

As much as half the world’s fossil fuel assets could be worthless within 15 years as part of the global shift to green energy. And around 13.5% of the world’s publicly-listed C0₂ emitting companies is owned by BlackRock and Vanguard, the two biggest fund houses, the majority of whose assets are passively managed.

Capturing all the market obviously involves capturing the returns of some businesses whose values you may disagree with, such as fossil fuel companies.

That’s not the full story, though. Evidence-based investors don’t ignore evidence. But we also build portfolios to deliver in the long term, which implies buying assets that are going to perform well over 30 years or more.

But renewables have only been part of the market for a decade or so. So their impact on an evidence-based portfolio is more muted than it would be with an active approach.

But with every sector in every economy set to become greener in the next four decades, and renewables outperforming fossil fuels for more than ten years – which is straying into the territory of ‘long term’ by anyone’s reckoning – their weight in global indexes is only set to increase, along with the space they occupy in your portfolio.

Having your cake and eating it

Can you invest consciously and passively? To a certain extent, yes.

The way we do it at Oak Four is to remain evidence-based – we’ll always use the data to build diversified portfolios that keep costs down. But for clients for whom sustainability is a key consideration, we use funds that tilt their investments towards companies that take Environmental, Social and Governance (ESG) factors into account, and away from companies that don’t.

You can go further, of course, and actively choose only companies who meet stringent ESG criteria – but at present, that would skew away from an evidence-based approach to investing.

The choice isn’t always as easy as it might seem. Some long-standing fossil fuel companies are amongst the biggest investors in renewable energy. BP, for example, is set to spend over $60 billion on renewables in the next 10 years. As an investor in BP, your money could accelerate that progress.

It’s not just a financial return – you own the companies you invest in and can influence the way they are run. And in the long term, they will change the shape and direction of the market itself.

The market is changing

With global ESG assets set to exceed $53 trillion by 2025 – over one-third of total assets under management (AUM), they’re going to make up a bigger proportion of the market every year.

53 of the biggest names in the investment business, with $7 trillion AUM, are funding the Workforce Disclosure Initiative (WDI) – an organisation that questions quoted companies for hard data on 13 themes, from corporate governance to diversity & inclusion and supply chain management, and publishes the results.

It’s not a feel-good, nice-to-know initiative. Investment houses fund it because they want the data to inform where they place their assets, because it’s what their clients are asking for.

We are getting there, as an article late last year in the Mail On Sunday noted:

“The industry is …undergoing dramatic transformation. Companies are getting better at reporting their credentials; fund managers are getting better at asking the right questions; and indices are being honed. In time, the landscape should be much easier for investors to navigate.”

It’s the end of 2021, the year that was supposed to herald the opening up of a brave new post-pandemic world.

That wasn’t quite how things worked out. We approach this festive season with restrictions reimposed and the threat of more to come… just like last year.

Who would put money on 2022 taking over as the year of renewal we expected of 2021?

Here’s what we’ve learned from the year that wasn’t quite what we thought it would be.

Lesson 1: it’s not over until it’s over

Don’t assume you know exactly how things will pan out. Read the evidence, look at the track record, but realise that events happen that can always throw a spanner into the works. Having a Plan B has never seemed a better idea.

Lesson 2: for every winner, there are many losers

There have been staggering wealth gains during the last year or so for those at the very top of the tree, but many millions more were pushed into poverty.

This is capitalism at its rawest – but the majority of evidence-based investors will have had a good year, returns-wise.

Lesson 3: we can’t get enough of experts.

From the scientists whose brilliance brought us the vaccine; to the doctors, nurses, paramedics and healthcare workers who kept the NHS going under almost impossible circumstances; to the teachers who kept our children learning online, in-person and socially distanced.

Any parent who struggled with home learning while trying to work will understand how much easier it is to leave it to the professionals.

Lesson 4: you can’t always believe what you read on social media

In the US, social media platforms have outperformed traditional news outlets as a source of pandemic-related updates, inevitably including conspiracy theories and anti-vax rumours.

Last year, Facebook admitted to putting warning labels on  90 million pieces of misinformation, including that Covid was linked to 5G masts, that the virus was manufactured in a Chinese lab, or that it didn’t even exist.

More about improbable news in our previous blog.

Lesson 5: we’re gradually getting greener

There’s a lot of hot air around when it comes to the environment, but the COP 26 conference in Glasgow helped focus our attention on the urgency of the climate crisis.

Traditional fossil fuel businesses are beginning to adapt to the realities of the green economy, reflected in the growth in renewable assets, which have outperformed their fossil fuel predecessors for over ten years.

Lesson 6: there’s always something new

The growth of bitcoin has spawned an even less intelligible phenomenon: NFTs. Non-fungible tokens are making waves in the world of alternative investments, especially the art and music businesses.

Notably Loȉc Gouzer, former chair of Christies, spent $12.9 million on a Banksy painting that’s now on show in Miami. Gouzer is intending to turn the work into 10,000 NFTs which he will sell to buyers who will not have collective ownership of the painting.

Lesson 7: there’s something more important than all of this

If 2021 has taught us anything, it’s the value of connection – with our families, our friends, our communities and our colleagues.

Being deprived of simple human contact with people we love and value for a large part of 2020 has helped us appreciate even more the time spent this year with family, visiting friends and relatives, helping neighbours, having a night out and, yes, even attending business meetings and events. Let’s hope that isn’t all lost as we gradually return to normal.

Here’s to 2022, and all it will teach us.

Trust, but verify.

Those of a certain age will remember this as one of US President Ronald Reagan’s favourite phrases when he was in office in the 1980s.

‘The Gipper’ used the old Russian proverb to describe his approach to US nuclear disarmament talks with the USSR. This was much to the amusement (or perhaps exasperation) of his opposite number, Mikhail Gorbachev, General Secretary of the Soviet Communist Party, who told him, “You repeat that at every meeting.”

Whatever your politics, ‘trust but verify’ is a good rule of thumb when it comes to believing what you read or see in the media, or when someone is trying to persuade you to do something that carries inherent risk (like choosing a particular investment).

Despite what we’d like to think, we all encounter things on social media and in the press that we want to believe, because they comply with our own values and biases. We have an emotional response to much of what we see, hear and read, especially over the last couple of years.

Let’s face it, it would take a heart of stone or the brain of a robot not to respond emotionally to some topics. Words like ‘climate emergency’, ‘immigration’, ‘guns’, ‘Brexit’, ‘vaccines’ and ‘lockdown’ can generate a visceral reaction.

We respond instinctively; they’re ‘trigger words’ and our own personal values and confirmation biases can mean we perhaps don’t dig deep enough and look at the facts.

When it comes to money, the same rules apply. Words like ‘hot stocks’, ‘unbeatable opportunity’ and ‘market crash’ can make us think about doing things with our portfolio that we probably shouldn’t.

Of course, marketers use this technique all the time. The more emotional we feel about something, the more we like, share and possibly buy.

It’s not all bad, of course: charities rely on triggering our emotions to encourage us to donate or volunteer for a good cause. But so do commercial organisations selling products you wouldn’t really want if you looked a little deeper and engaged your critical faculties.

Jonah Berger, author of Contagious: Why Things Catch On explains in this podcast how getting people to feel emotional about something encourages them to share it, even if it’s not strictly true.

It’s one thing to wonder if a news story about a politician or celebrity is correct. But we’d argue you should pay even more attention if the other party is asking you to part with your money.

How do you sort out the baddies from the goodies?

Do your fact-finding due diligence and check your biases when you see, hear or read something new that makes you feel like sharing or buying.

Unless you can prove it’s right, assume it’s not. Don’t let confirmation bias – the fact that it accords with your views – blind you to the possibility it might be complete rubbish.

Ask: why do they want me to believe this? What’s in it for them? Don’t let familiarity bias get in the way: the tendency to accept something because you know the person who’s selling it, or they’re a big name and you’re used to people talking about them.

Also ask: who is it asking me to do this? Scammers, for example, can be extremely good at making emails and phone calls look and sound genuine, leading otherwise savvy people to transfer the contents of their bank account to that of a plausible trickster. But even legit businesses can persuade you to do something you may regret in hindsight.

Check them out. Comb through their website. Look at independent reviews. Check that what they’re saying stands up to scrutiny. Blind spot bias means we often are well aware of others’ cognitive biases but don’t see the same mistakes in our own behaviour.

If we see something repeated again and again, it can seep into our brain and we believe it, even if we were sceptical the first time we heard it. Hindsight bias leads us to believe what we see now, and perhaps forget the unease we felt when we first encountered the claim.

Herd mentality often leads us in the wrong direction. If it’s a good deal today, it will be tomorrow. Don’t let anyone hurry you into making a financial decision you will live to regret just because ‘everyone else is doing it’.

Three checks anyone can do

Reality check. Is it really true? Fortunately, there are a number of online fact checkers who do the heavy lifting for you. So next time something sounds just a bit too far-fetched, check it out on Snopes or fullfact.org.

Google it. Scroll down through the ads and marketing websites until you come to reputable journalistic, academic, scientific or independent trade websites or publications and see what they say. If the only result that comes up is the link your friend sent you, then you (probably) have your answer.

Find the source. Dive deep into the links until you arrive at the peer-reviewed academic paper, recording of the actual speech or other original (nor reported) source. Get it from the horse’s mouth.

It’s in your interests to make sure the news and information you act on is the truth, the whole truth and nothing but the truth. Emotional reactions may be more exciting but, when it comes to investing, base your decisions on the evidence.