Rachel Lacey explains why she's embracing a simple passive investing strategy and why regular investing is more important than picking the best possible funds.
When I first started investing – about 15 years ago or so – it felt like a huge step. Daring almost, as silly as that now sounds. To me, as a financial journalist, it very much felt like a risk and I really felt the pressure to pick the ‘right’ funds.
Bear in mind that this was pre-financial crisis too. Interest rates were still around 5%, so it wasn’t like I couldn’t earn a decent return with a good savings account.
Nonetheless, I was writing about financial planning and investing, day in day out. I extolled the virtues of regular investing and diversification, I understood the power of compound interest and knew that over a lengthy investment horizon my money should grow faster than it would in a cash account.
I also had the added ‘perk’ of compiling the annual fund and investment trust awards for the publication I was writing for at the time. If I couldn’t pick out a fund manager who could deliver consistent returns then I couldn’t expect anyone I wrote for to.
So I started with a stocks and shares ISA and picked four funds that I could each pay £50 a month into. I might have been a financial journalist, but I wasn’t immune to the hype around ‘star’ fund managers and one of my first choices was Invesco Perpetual Income, run by the now disgraced Neil Woodford.
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A decade and a half later, I’m still paying into that ISA (although the funds have changed a few times and there’s no longer a ‘star’ among them) and opened two Junior ISAs for my sons. Now that I’m self-employed I no longer have the luxury of a workplace pension so I pay into a SIPP as well.
Investing doesn’t need to be complicated
I am very much an investor as a result of the work that I do. I can’t honestly say that I’d be investing now if I didn’t write about money for a living. I certainly wouldn’t have been brave enough to transfer my old work pension into a SIPP that I run myself. But – and here’s the thing – it really, really, shouldn’t be that way.
If there is one lesson I have learned it’s that investing really isn’t that complicated. Nor is it hard work.
Fifteen years down the line, I can see that the gains I have made are less about the specific funds I’ve chosen and more about the fact that I’ve regularly been paying money into a reasonably diverse spread of investments over a lengthy period of time.
I’ve never tried to time the market and capitalise on volatility – I just have a direct debit that pays into each account every month.
And this is why I embrace the term ‘lazy investing’ – you can enjoy good stock market returns without poring over charts and tables and constantly thinking about whether now is the right time to buy or sell.
You don’t need to choose the ‘best investments’ either – doing something, is usually better than doing nothing, if the pressure to make the ‘right’ choice forces you into paralysis.
That ‘something’ can just be one, well-diversified fund, you don’t always need a portfolio, especially when you’re only dipping a toe in the water.
Why I love passive investing
The demise of Neil Woodford put the final nail in the coffin of the ‘star’ fund manager and over the last few years there has been a massive shift towards passive investing – funds that track an index – rather than relying on a manager who makes active decisions around what to buy and when to sell. In fact, in September, for the first time ever, just one actively managed fund – Fundsmith Equity – made it into interactive investor’s top 10 most-bought funds.
With a passive investment fund (often referred to as a tracker) money goes up and down in line with the particular market or index you are tracking, and without a manager at the helm they are a lot cheaper to run.
You’ll never beat the market with a passive investment strategy, but you do reduce the risk of paying a premium for an active manager who either replicates or, worse, underperforms their benchmark.
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This makes choosing investments a whole lot easier for new investors, who might not have the time, desire or confidence to do a lot of research into funds.
It’s also a good way of doing something, rather than nothing.
I’m a firm believer in passive investment and most of my money is now in trackers. I might not be getting the highest returns that I could, but the major upside for me is that I don’t need to devote hours of my time to researching the best options. Putting it bluntly, I don’t have the time, or (if I’m being really honest) the inclination.
I haven’t quite sold all my active funds, but I do wonder how much longer I will hold on to them for. My kids’ ISA money is invested in an actively managed global fund and over five years it’s well ahead of my passives, which makes me reluctant to ditch it. However, it’s not done too well over the last year, so maybe it is time to sell up?
That’s the other thing I like about the passive approach. So long as I’m confident in the market or index I want to track, I don’t get bogged down by concerns around performance. The only thing that would make me want to sell a tracker is if I could find a cheaper fund tracking the same shares.
Of course I don’t like it when my investments go down, but with a tracker I’m spared the stress of wondering whether the manager could have handled things better and my response is perhaps a bit more sanguine.
It is, I admit a very hands-off approach. But over the years I’ve learned that that can take a whole lot of the stress out of investing. It is important to review your investments regularly, and online access and smartphone apps do make it all too easy to see what our money is up to, but monitoring your investments too closely only adds to the stress for me.
I probably log on to my investment platform every three or four months, but there have been periods of my life – like when the kids were tiny - where it’s only been once or twice a year and that’s been just fine.
It means I don’t get caught up by micro-movements and can clearly see that in spite of lots of wobbles and a handful of more worrying falls – that the long-term trajectory of my money is positive.
I know lots of hobbyist investors might question my approach, but it’s working well for me. And if discussing investing in these more straightforward terms makes it more accessible and encourages more people to invest, that has to be a good thing.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.