The Great Savings and Pensions Scam. An A-Z Guide. Today U-V

U – Unit trusts have rightly been described as a ‘breakthrough in financial democracy’ because they allowed ordinary savers to put their money with professional financial managers at very low cost. But they have become so profitable and there are now so many of them, that there are more unit trusts than there are shares and bonds for them to invest in. A few things to watch out for. Charges – usually you’ll be told a unit trust’s ‘annual management charge’ is about 1%. In fact many costs are not included and you’ll find in reality you’re paying three times that. Closet trackers – there are two types of unit trust: actively managed which charge about 3% and index trackers which cost 1% or less. But many supposedly actively managed funds buy pretty much the same shares, so you’re paying for active management but only getting what’s called a ‘closet tracker’. Poor performance – over the longer term around 90% of the 6,000 or so unit trusts fail to beat the overall stock market. So how are you going to find the 10% which do actually perform? Making insiders rich – we pay around £59 million a day to unit trust firms to manage our money whether our investments go up, stagnate or collapse in value. The result is that fund managers become multimillionaires and we are lucky to get a few crumbs.

V – Vested interests. With every new investment fad, from emerging markets to gold to ostrich farming, there are always plenty of vested interests enthusiastically talking up the market. Before the South Sea Bubble burst one commentator wrote ‘South Sea is all the rage and fashion and happy are they that are in’. Those in the know made fortunes while many thousands of ordinary investors were ruined. Prior to the 1929 Wall Street Crash a respected commentator claimed, ‘I expect to see the stock market a good deal higher in a few months’. Once again, insiders made fortunes and ordinary people were ruined. With more recent bubbles like the high tech boom and the rush to gold, industry cheerleaders once again encouraged us to risk and often lose our money in their latest schemes. Beware of overenthusiastic insiders. They will get rich, you and I will not!