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Rupert Jones has patiently saved in a FTSE 'tracker' fund for nearly 10 years - and now it's worth less than he has paid in. Is saving via shares a waste of money?
Another week, another "Black Monday" on the markets – and, for millions of us, another bite taken out of our already-decimated investments. It's left me wondering: are we all victims of the great stockmarket swindle?
On Monday, the FTSE 100 index plunged to a six-year low, wiping almost £50bn off the value of Britain's biggest companies. That day's Guardian had carried an impassioned article by journalist and historian Max Hastings, in which he laid bare the disastrous performance of his pension investments. I'd found it perversely heartening to read about someone else's financial woes because I was still reeling from the news that my own little nest-egg – a £50-a-month stockmarket Isa with Legal & General – had effectively plummeted in value by 22% in just six months.
Worse, my Isa is now worth less than I've paid into it, even though I've held it for almost 10 years.
Some Guardian Money readers with long memories may recall that this time last year, I reported on the less-than-impressive performance of my investment, and of my Dad's Pep.
Our money is in a supposedly relatively low-risk UK "index tracker" fund – and not just any old tracker, but Britain's biggest: L&G's £2.7bn UK Index fund, where our cash is invested in hundreds of different firms, including many household names (BP, HSBC, Vodafone, etc). At the time, I talked to some financial experts about what *people in my position should do. Should I stick with my Isa, or bail out?
The view seemed to be that if I didn't need the cash now (I didn't and still don't), I should probably hold on to it, as selling would simply crystallise the loss. I concluded that perhaps I needed to "keep the faith".
A few days ago my latest statement arrived, bearing grim tidings. It tells me that on 22 July last year, my investment was worth £5,814. During the following six months, I paid in a total of £300 of my cash, topped up with £117 of reinvested dividend income. But despite that, its value had shrivelled to £4,862 by 22 January this year. In total, I have paid in £5,250 since April 2000.
Back in July 2007, my Isa was valued at £6,605 – so how can it have fallen so far, when it has had £1,200 pumped into it since then?
It's a similar story with my Dad's Pep. Like me, he has his cash in L&G's UK Index fund, which tracks the FTSE All Share index. His investment has also slumped by 22% in six months, and is now worth £6,265. A few years ago it was valued at £12,000.
Both of us bought into the idea that equities outperform over the longer term. We understood that shares go down as well as up. But over 10 years, all the data suggested we'd be in the money. Nothing could be further from the truth.
If I'd put my £50 a month into a savings account starting back in April 2000, I'd have £6,138 by now, according to the Halifax. It's a cliche, but I'd have been better off putting the money under the mattress.
Yet I was only doing what the experts advised, wasn't I? I've been "drip-feeding" money into my Isa, as is recommended. At the time I took it out, I specifically opted for a fund with very low charges (experts often recommend that, too), and one that would invest my cash in a wide spread of companies in order to reduce risk (ditto).
The conventional wisdom is that shares always outperform other investments over the long term. Even government leaflets state that when putting money away for a long time, "accounts that invest in shares almost always produce a better return than savings accounts."
Oh yeah? Like millions of other Brits, I've lost my faith in the investment industry and the way it tries to tempt us to buy.
The mantra that "shares are best" tends to be peddled by financial advisers – but they usually earn hefty commissions when selling you a fund. But after two massive bear markets (2000-2003 and 2008-09) in less than a decade, their claims no longer ring true.
Three out of four unit trusts invested* in UK equities have managed to lose you money over the past 10 years. A few investment superstars have consistently outperformed. Anthony* Bolton (now retired) has earned an average of 8.99% a year for investors in his Fidelity Special Situations fund over the past 10 years, while Neil Woodford's Invesco Perpetual income funds have achieved an average annual gain of 7.13%. But they form a tiny band of achievers in an industry dominated by fund managers and index funds that have persistently lost money.
Perhaps the most seductive of investment myths is the idea that if you keep hold of your shares, they'll eventually bounce back. I held on last year – only to throw good money after bad. As my father tells me, he is "hanging on in the desperate belief it might recover. To sell now would be a fire sale."
Tom McPhail, one of the experts at IFA firm Hargreaves Lansdown, suggests that I, and people like me, need to ask ourselves: if I've got £4,800 today, where do I want to invest it? I need to go through the same process I went through before I took out my Isa, looking at my investment requirements, attitude to risk, and so on. It's perfectly possible that at the end of that process, I'll conclude that the type of fund most appropriate for me is the one I'm in.
Then a press release drops into my email inbox: "Stash your cash under the mattress with Feather & Black's new safe bed." Hmm. Tempting.
Then another arrives, from investment firm Edward Jones, littered with tables showing that following previous severe market declines, "the stockmarket has usually rebounded sharply."
So if I bail out, that will be the cue for shares to motor upwards, leaving me looking like a chump. Maybe I'll just put off the decision.
See you here in a year's time ...
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