Part two - It’s complicated...
In the first part of this series I looked specifically at why women aren’t investing. This time, I’m exploring what’s stopping everyone else.
As a nation, we’ve not really been ones for investing. Only 3% (approximately) of the UK population were subscribed to a stocks & shares ISA account in 2019. It can be an effective way of growing our money, and can protect our savings from poor interest rates and high inflation. So what’s stopping us from doing it? Naturally, there’s a lot of factors, but I think one of the biggest is this: investing seems complicated.
A (very) brief history
The concept of investing is hundreds of years old, but the way we recognise it today popped up around the late 1700s, when the London and New York stock exchanges were established. Back then it was only business men, on behalf of businesses, that were able to invest in other businesses. As time went on, the patriarchs of high society families dabbled (via accountants and advisors, no doubt) and, eventually, thanks in part to the internet, the general public were able to join in, too.
It seems that the historical air of exclusivity of investing still lives on, though, in the perception that unless you have the education or experience, it’s too complicated to even consider.
Is investing complicated?
A million dollar question that I’m often asked, and that I generally answer with this: as far as I see it, it isn’t that investing isn’t complicated, it’s that it can be very simple. I’ll go into this more later – but for now, another question. Or perhaps a paradox, a Schrodinger’s cat, of sorts:
If something is simple, but everyone perceives it to be complicated… which is it?
Perception is powerful – it can make or break the career of politicians, get a guilty criminal a not-guilty verdict, or, it seems, stop millions of people getting more from their money. For me, the issue is less whether or not investing is complicated, and more the fact that most of us think it is. It’s a vicious cycle where people don’t invest because they think it’s complicated, and because they think it’s complicated, they don’t invest.
So, why does it seem so complex?
There’s so much to choose from that you can’t make a choice
Well, that’s not not true. You have bonds, shares, retail funds, ETFs, Options, Annuities, Commodities (and don’t even get me started on speculative investments like crypto…). There are a lot of different types, and within each type there are innumerable sub-types, providers and platforms.
If you’ve heard some good stuff about investing and decide to have an explore, the second you google it and get greeted with the millions of results detailing all those different types, you're naturally going to be put off, because it’s overwhelming. How are you supposed to know where to start without anyone helping you?
If you can make a choice, then there’s the fees to contend with
Let’s say you find some articles on line that help you narrow down what type of investment you’d like. Now you have to find out who you’re going to choose to facilitate that investment for you. You can’t just walk into the London Stock Exchange with a handful of cash, afterall.
Whether we’re choosing a broadband provider, pet insurer or gym membership, most of us tend to go off who’s offering the best deal for what we’re looking for. So, it’s likely that we’d apply the same thinking to investments. So, you search for the best providers for your chosen investment, and then you’re bombarded with admin fees, platform fees, management fees...0.25%, 0.5%, 1%... and you’re back to feeling alienated and confused.
Even if you don’t find all of the fee information confusing, you might still find it offputting. Rules introduced by our financial regulator’s “Retail Distribution Review” means that investment intermediaries have to be more upfront about the fees they charge, rather than quietly taking a percentage of the earnings later down the line, as they may have done previously. This piece of regulation was supposed to help make the fee structures around investments more straightforward, but some have argued it’s acted as a deterrent, because investors have to pay money up front (and are more aware of what they are paying upfront) with no guarantee they’ll make any through the investment.
Then you have to go through a complex buying journey
Once you’ve chosen an investment and found a suitable provider, you then have to go through the process of signing up. Where the banking industry has done a fairly good job of bringing its operations into the 21st century (ie. being able to sign up online), the world of investments is lagging behind a tad.
Lots of investment intermediaries still want you to send in physical copies of identity documents, which is troublesome for two main reasons: 1) who wants to send their actual passport or driving licence in the post? It’s terrifying, and 2) not that many of us have a means of creating copies of documents anymore. You also often have to physically sign the contract with the intermediary, because e-signatures will not do! It’s a bit archaic, but it’s how a lot of the investing infrastructure still is.
And, if you make it through all of that paperwork, you then have to give them your money to invest, but with a lot of intermediaries, you don't have an ‘account’ with them where you can just add funds. Instead, you have to transfer it to their account, and just trust that it’ll arrive, because you have no way of tracking it on its journey.
It’s a lot of (quite frankly, convoluted) hoops to jump through, only to then be bombarded with the dreaded word….
After all that, you’re then given several documents (which can be up to and over 60 pages each) with details of your potential investment, and plastered all over every single page are sentences telling you that your capital is at risk.
With any document relating to investments, the providers have to tell you (over and over again) about the level of risk. It’s a regulatory requirement (and considering risk is important!). The issue is that the minute you mention the possibility of losing money to people who are new to investing, you’re going to put them off. It’s instinctive; we’re designed to avoid danger, and big, bold letters spelling out ‘RISK’ equals danger.
But the thing is, we’re faced with risk constantly in our daily lives, but it doesn’t stop us from doing things in the same way as it does in the context of investing. Why? Because we’re generally able to evaluate and calculate those risks. Like crossing the road, for example. If there’s a red man but no cars, lots of us will take the risk and cross. We feel comfortable and confident that, as adults, we can calculate the risk involved and take it if it feels appropriate. But when it comes to investing, people aren’t prepared to analyse the risks, because they’ve never been helped to understand them. So it’s really difficult for them to weigh up the risks and decide whether or not to take them, because they haven’t been given the necessary knowledge or context.
And here’s the other thing: those long documents, they’re not actually very complicated. The language used in them is, perhaps surprisingly, quite straightforward. But it’s the sheer volume of language that makes them seem complex and overwhelming, because there’s just so much in there to wrap your head around… and trying to do that while your instincts are telling you to throw the document in the bin and lock your money away in a safe is even harder.
So, yes, all of the above makes it sound complicated
But it doesn’t have to be.
I learned all I know about investing and investments through studying and working. I started as a trainee in an investment funds team in a law firm and in my first week, one of the partners told me to keep a list of every single term I heard that I didn’t understand, and every two days we’d go through them. I did, and I’ve done it for every role since (because there’s still plenty I don’t understand!). It’s been incredibly helpful – but you shouldn’t have to work in investing for a decade to be able to understand the basics to get you started.
I’ve made it my mission to make investing more straightforward and accessible
That’s why I joined Dozens. We’ve worked to make the process of investing simpler. You set a goal and then we check your risk level through eight simple, swipeable questions. After that, we do a quick affordability check and help you assess your risk appetite, based on your input about your finances. Then we show you a selection of available strategies tailored to your risk level.
All of our investments are themed, so you can choose what to invest in based on your interests. You don’t have to scour the internet to figure out what would be best, you just pick something that interests you. Once you’ve chosen a strategy, and you’re comfortable with the legal documents and risks as set out, it’s just a couple of taps to invest. And one of the best bits is that you can see where your money is at all times, because you just transfer it from your own Dozens current account into your Cash Savings.
Investing really doesn’t have to be complicated, intimidating or exclusive
If you’re in a position where you are amassing some savings, feel dissatisfied with the poor long-term interest rates, and are looking to put some money away for a medium to long period of time, your next step can be to consider investing.
After all, we’ve come a long way from the 1700s, and investing isn’t just for businessmen in suits anymore.