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Peter Hargreaves co-founded Hargreaves Lansdown, Britain’s biggest stockbroker, in 1981 and was its chief executive until 2010. His significant shareholding in the company made him a billionaire.
Hargreaves Lansdown helped to bring stock market investing to the masses by offering a simple way to buy shares and funds with the help of tools such as a list of recommended funds.
He retired from the company in 2015 and has since set up a fund management boutique, Blue Whale Capital.
The tiresome business of managing investments
How best to look after one’s investment capital is a never-ending subject for debate and worry. Sadly, it’s a debate without a perfect conclusion: there are numerous channels to explore and a plethora of people who will court you and offer advice.
The big decision is whether to do it yourself or entrust the task to someone else. If you have the time and inclination you will be your own best adviser, not least because only you really know your attitude to risk.
This is how I manage my own money...
Looking after your investments can be a daunting job, but done well it is very satisfying.
I don’t do it anymore, but I do have open discourse with the people who carry out the task for me.
I still enjoy contributing my two penn’orth. After a lifetime in the business, I hope my suggestions and observations are of some use. I find it difficult to stand back and let them get on with it, although I am confident they would do a good job without my input, possibly a better one!
I do still have enough interest and knowledge to contribute what I hope is worthwhile input.
In particular, I have knowledge of how conflict and economic circumstances affect stock markets, even if such knowledge can never be the whole answer since history cannot be trusted to benignly repeat itself.
The point I am making is that to manage your own investments you need knowledge, to have followed markets and to be prepared to back your judgement.
...and this is how I suggest you manage yours
I suggest that most investment novices will need someone to hold their hand to get started, or they probably never will.
That helping hand is most likely to come from a financial adviser. As long as you have ensured that your adviser is properly authorised and genuinely in the business, you are likely to find your money invested in a portfolio that achieves moderate but safe performance.
I use the word moderate not as a criticism – it is because, while advisers now have to be qualified and knowledgeable, they are massively shackled with regulations. You will almost certainly get a portfolio that takes less risk than you would take yourself. The adviser dare not diverge from caution.
I am lucky because I am still deemed to be a professional investor, so my advisers can offer more excitement (not that I seem to have done much better for it). Always remember that there are two sorts of investor: small investors who can’t risk their capital and rich ones who don’t need to.
It is the regular attention they give to your portfolio that separates the good adviser from the poor.
An annual appointment to review progress is usually inappropriate (unless the review is to discuss changes made during the year). The adviser will probably get your details out for the first time in a year 20 minutes before you arrive.
Making changes immediately after an annual review must by definition be unsuitable. Why would the day of your annual review be the right time for making changes to your portfolio? If that is what you are getting you should probably seek another adviser.
I must emphasise that any well-constructed portfolio should need very little tinkering. An important rule in investment is that “time is more important than timing”.
A great example of this was exhibited by Fidelity’s Magellan fund in America. Peter Lynch ran the fund for around 20 years during which time it compounded at more than 20pc a year.
The average investor, however, made only about 6pc a year because they sold after periods of poor performance and bought after periods of good performance, something that many inexperienced investors are prone to do. Regular chopping and changing is a recipe for poor performance.
It is, however, helpful to have an adviser who is watching markets and sectors who will suggest areas of danger and areas of potential.
It is in this area that people who look after their own investments often fall down. Very few really keep their eye on the ball: on inflation, interest rates, political events and their likely effects on various industries and economies. The information is there to be found but your holidays, big life events and so on can prove distracting.
Unless you are a true investment aficionado, your attention and interest are likely to wax and wane.
How to choose an adviser
You might find a devoted local professional who will tailor for you a totally bespoke portfolio and then diligently shepherd your investments. Such advisers are rare and tend to get too big to continue with that level of attention.
Today, most wealth managers have a small range of portfolios that can accommodate most customers. Age, time horizons and attitude to risk can be used in profiling clients to establish appropriate diversification of their investments. Advisers will also accommodate any declared short-term requirements for money, possibly by using liquid assets such as cash.
You will have your money in the same basic portfolio as others but you can take comfort from the fact that it is regularly researched and evaluated. The potential of each asset in the portfolio will be questioned: is its potential the same as is available from other assets, or better or worse?
After much consideration, there may be a decision for change. Every customer whose money is in that portfolio will have it adjusted at the time judged appropriate – and not on the almost certainly inappropriate day of those annual reviews mentioned above.
One important rule is not to hide anything. For example, I found that clients often didn’t divulge all their deposit accounts. If you want to keep more of your money in cash than might be proposed, just tell your adviser.
I keep more in cash than the generally advised percentage and my advisers know it.
It’s time to take the plunge
One trap into which investors fall is trying to time their first investment to perfection. You can always find a reason to wait: the political situation is volatile, the market is too high, interest rates are going to go up, the world looks insecure, and so on.
One of my first potential clients at Hargreaves Lansdown came to see me in 1981. I meticulously put together a portfolio that seemed to suit him. Then there was a short, sharp fall in the market. I thought it a splendid opportunity and was thankful we hadn’t yet invested.
There was a stock market guru around at that time who wore a white suit and played a white piano when he forecast market falls. Forecasters of that ilk are bound to get it right sometime!
He unnerved my prospective client. For the next 20 years, every time the market went up he was convinced it had gone too high and when it went down he was sure it would decline further. He missed the best bull market of the 20th century.
The moral of the story is that if you have a plan you like with an adviser you trust, get on with it. Remember that every positive and negative stimulus to the market is already factored into share prices.
There are thousands of analysts, mathematicians and statisticians working full time trying to find bargains and examples of overpricing. All things that can be predicted are already reflected in the price. So it’s better just to get on with it.
‘Hargreaves Lansdown made me a billionaire – this is what I do with my own money’
Peter Hargreaves brought the stock market to the masses. These are his tips for investors