Don’t wait to catch the stock market

Some analysts are forecasting it could breach 7,000 before the end of the year. Others are suggesting it has already gone a long way very quickly.

My business today is not to speculate on what is driving stock markets but to consider the predicament of small investors and the effect rising share prices inevitably seems to have on them.

I have lost count of the number of times I have overheard people saying something like: “The stock market has been doing well lately; I think I’ll invest some money.”

If anyone had suggested investing to these same people a year ago they would not have touched it with a bargepole.

Would they, I want to ask them, wait until a car increased in price by 20 or 30 per cent, then decide it was good value and go out and buy it?

Even now I read reports of investors chasing dividend income because of poor returns on savings accounts. But how much better that income would have been had they begun investing a year ago.

At times like this smaller investors desperately need financial advice. In the past they might have gone to their bank where a salesman would have rubbed his hands before flogging them an expensive underperforming in-house fund or maybe an investment bond for a whacking great commission.

Where should these smaller investors go now? Many have not got the sums to make it worthwhile paying for good financial advice. Increasingly these people will come to rely on information they find on the internet.

And here we come to another concern. It has never been easier for someone to invest their life savings at the touch of a button. I suspect this is one reason why the regulator is looking closely to ensure the line between advice and information is clear.

The dangers of investing lump-sums in a rising market are illustrated by Fidelity’s figures showing the importance of time over timing. Someone who invested £1000 in the FTSE All Share on 30 April 1998 would have £1962.04 by 30 April 2013. But if they had missed the best 40 days they would have just £355.41. Missing the best 10 days would reduce their saving to £1061.17, that is, they would have made just £61 profit.

As always, regular saving would seem to be one answer.

The questions are how to get that message into the minds of ordinary investors who insist on sitting on their money until they get excited by rising share prices; and is there any way to get sensible advice to small investors at a price they can afford?

At times like this smaller investors desperately need advice - but increasingly they will have to rely on information they find on the internet

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RDR benefits the consumer

So UK Independence Party has called for the retail distribution review to be scrapped. Former IFA Godfrey Bloom, who is a UKIP MEP and economic and monetary affairs committee member, reasons that RDR is anti-libertarian. He said: “We believe you should be able to make any financial arrangement with your financial adviser that suits you both. It is no part of government to interfere in liberty or contract.”

I am guessing these views will go down very well with sectors of the IFA community. I am also guessing that UKIP enjoys fairly wide support among IFAs – certainly more than it does in the wider community.

But commission-based payments always offered far more to the adviser than to the consumer. So it is a relief to know that under our outdated and unbalanced electoral system UKIP is unlikely to get a single member of the UK parliament even in the unlikely event that it maintains its current levels in the polls.

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Traps for the unwary

City of London police recently made a series of arrests following an investigation into pension liberation fraud.

Pension liberation is a lucrative and potentially very nasty business. Victims have lost huge sums to the conmen and taxman.

Now it is the government’s turn to take a hand. Pensions minister Steve Webb has said the government is looking at whether it has got the legislation right. The ease with which these companies operate suggest it has not.

One simple way to address the problem would be to take the access age for pension funds back to age 50. Raising it to 55 always smacked of socialist interference (no I am not turning UKIP).

Most investors saving for retirement will not touch their money until later. Only those that have made good provision or are desperate will take their money early.

And as is often the case prohibition has merely created a shady market laden with traps for the unwary.

Tony Hazell writes for the Daily Mail’s Money Mail section