December 2017
M T W T F S S
« Nov    
 123
45678910
11121314151617
18192021222324
25262728293031

Why your financial adviser is either a liar or a fool

If it were the case that cash (money held in a bank) usually outperformed shares (either shares held directly by savers or held by unit trusts) then most of us would be much better off leaving our savings in a bank rather than investing in stock markets, unit trusts, bonds, ETFs or whatever. But this would also mean that most of Britain’s 28,000 supposedly “independent” financial advisers (IFAs) would be out of a job. Personal finance journalists are constantly repeating the mantra that ‘over the longer term, with dividends reinvested, shares outperform cash’. Probably you’ll also hear the same tired old song from financial advisers. There is only one small problem – it’s a complete, total and utter lie!

I have always believed this lie till I read the excellent free book Monkey with a Pin. The data most journalists and financial advisers use to justify the ‘shares outperform cash’ lie is usually the Barclays Equity Gilt Study. I suppose we should have known the ‘shares outperform cash’ story was a lie just by the fact that Bob Diamond’s recidivist mis-selling Barclays Bank was the source. The trick Barclays play to come up with the ‘shares outperform cash’ lie is that when looking at cash, they don’t look at the interest we would get from 2- and 3-year higher interest bank and building society accounts. Instead the liars and mis-sellers at Barclays use UK Government Treasury Bills as what they call ‘cash’. These Treasury Bills are not available to ordinary savers like you and me, so to use them as a proxy for ‘cash’ is ridiculous. Moreover, the interest paid by 2-and 3-year higher interest deposit accounts is almost always much higher than Government Treasury Bills. If Barclays used the average interest paid by 2-and 3-year higher interest bank accounts, then for 80 of the last 100 years, cash would have easily outperformed shares. There was just a brief period of 20 years (the 1980s and 1990s) when shares outperformed cash. And this was because of a flood of babyboomer savings into unit trusts and pension funds. As the babyboomers retire and their money gets taken out of shares and pension funds, we can expect falls in share prices. And, of course, Barclays don’t take account of the £150m a day we suckers pay in fees, commissions and many other charges to IFAs, unit trust bosses and pension fund managers

So, if your financial adviser ever claims that ‘over the longer term shares outperform cash’ either they are knowingly lying to you or else they are so stupid that they don’t even know that the ‘shares outperform cash’ is just another Barclays con to get us to put money into their worthless stock-market savings schemes.

Comments are closed.