Father’s Day advice for new investors
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This article is the latest part of the FT’s Financial Literacy and Inclusion Campaign
It is Father’s Day this Sunday and judging by the rather lame selection of cards, dads are mostly good at DIY, football, golf and fishing, not to mention drinking beer.
So far, so stereotypical. But what about your dad’s investing skills?
Volunteers for Flic, the FT’s Financial Literacy and Inclusion Campaign, often tell us their passion for personal finance stemmed from their dads (the same is true of male and female volunteers).
It’s not always the dad — sometimes it’s the mum, a grandparent or a beloved maths teacher — but dads are mentioned so frequently it’s sparked discussion in the FT offices.
As many of our volunteers are over 40, we wondered if this simply reflected gender norms at the time we were growing up.
Take me, for example. A child of the 1970s, my dad was the sole breadwinner and mum gave up work to raise me and my brother.
She taught me all about budgeting and spending wisely, but dad had what I’d call the “product knowledge”.
When I left home, I would frequently receive articles in the post that he’d clipped from the weekend personal finance sections nudging me towards saving using premium bonds, Isas and pensions. I did not act on all of his wise and sensible suggestions straightaway, but they lodged in my brain.
I did, however, buy my first flat aged 26 after a flurry of clippings about mortgage deals for first-time buyers.
My parents have always been careful with money because they are not wealthy. Twenty years ago, you did not need an enormous deposit to buy a property, which was just as well as there was no “Bank of Mum and Dad” for me to draw upon.
However, dad bequeathed me two highly valuable financial skills: the desire to make the most of my money and to keep on learning about the best ways of doing this.
I’m very lucky, but what about people whose parents (or teachers) have not passed on these lessons?
“My parents taught me nothing about money, I just went online and did it myself,” was the snappy response of the first millennial colleague I asked.
Social media sites — particularly Instagram, YouTube and TikTok — are places where young eyeballs come to seek financial advice in video form.
I ran a poll on Instagram this week, asking: “Who taught you the most about money — your dad, your mum or the internet?”
The top answer was the internet (71 per cent) with dads second on 20 per cent and mothers trailing on 9 per cent. But is the web the best way of learning about money?
Online investing exploded under lockdown, with the combination of spare time and spare money prompting millions of young people around the world to get started, inspired by watching people like them.
I am all for the democratisation of finance, and some of the content produced by so-called “finfluencers” is both inspirational and educational.
Three of my favourites sharing the highs and lows of people’s money and investment journeys are @GoFundYourself by UK writer Alice Tapper, @BasicFinancialLiteracy by US vlogger Patrick Di Cesare, and @StocksandSavings set up by millennial couple Andreea Ion and Jamie Galvin, who feature on Money Clinic podcast this week.
The problem? A great deal of the free “advice” being peddled on social media should make financial regulators weep.
Well-intentioned educational content rubs up alongside crypto bros in Lamborghinis, teenage day traders celebrating huge gains and celebrity-endorsed routes to riches that turn out to be anything but. Not being able to tell the difference will cost you dear.
There is scant discussion of risk. While tech stocks and crypto have been on a winning streak, this hasn’t mattered. On most days, new investors have been waking up, checking their trading apps and feeling richer. Until now.
The onset of “crypto winter” and a tech-driven bear market in the US is terrifying for inexperienced investors, whose dreams of achieving “financial freedom” have been wiped out along with their investment gains.
So where does this leave the 71 per cent of people who told me they turned to the internet for financial advice? How many newbies will now abandon investing for good?
Online influencers renowned for pumping stocks or crypto have been suspiciously silent. Others urge investors to “hold on for dear life” and resist crystallising their losses; the more gung-ho proclaim “just buy the dip”.
But it is not all bad. Investing can be a lonely pursuit, so being able to collectively share experiences online via Reddit threads or Facebook groups can be hugely positive for nervous investors of all ages.
If you’re feeling in need of some fatherly advice, here are a few lessons I’d like to pass on.
Everyone makes mistakes in investing, and indeed, in life. Don’t beat yourself up about this. It’s how we learn from those mistakes that matters.
Most investors have lost money over the past few months — yes, even me. But I am not rushing to sell my holdings. I am sticking to my strategy. To find yours, you need to ask the question: “What am I investing for?”
Too many new investors have been lured by short-term gains. I am firmly focused on the long term. I make the most of tax breaks (pensions and Isas for readers in the UK; 401(k) plans and Roth IRAs in the US) which make paper losses slightly easier to bear.
My pension is locked up until later life, but I’m not planning on accessing funds inside my stocks and shares Isa until my sixties.
In the folder where I keep my account details, I have a chart I made on a compound interest calculator showing the likely effect of regularly investing a set amount every month until the 2040s. This is very calming in times of market turmoil.
I automate my regular investments and review my portfolio twice a year. I do not have the app on my smartphone — there’s too much temptation to fiddle!
Before I started investing, I built up a cash emergency fund. Interest rates on your savings won’t beat inflation, but they are a darn sight cheaper than interest rates on borrowing money.
Common blunders include putting too much of your money into a single stock, fund or asset class. Diversify and learn about asset allocation (a vexed question at the moment). Invest time in doing your own research and finding themes that interest you.
As younger investors, we also have time on our side. Volatile markets and soaring inflation are much more worrying for those approaching retirement. But if you’re sending a Father’s day card to your dad, you might want to steer clear of mentioning that.