New investors: don't be afraid to ask stupid questions

For beginners, the world of investment is a minefield of jargon. We urge you to ask more hard questions.
 

Many of us started 2019 vowing this would be the year we finally start a long-term investment plan. The recent downturn in markets is troubling for older investors, but it is spurring younger investors into action. I know this from the spike in Google searches for articles about how to begin investing.

Are you one of them? Now we've reached mid-January, the mantra of "new year, new investment you" may be making you feel guilty rather than smug. But it shouldn't. When it comes to starting investing, dropping the ball with resolutions may not be entirely your fault.

As soon as you search Google for "start investing", even on the most consumer-friendly websites, you'll come across baffling jargon. Terms such as platform, active management and robo adviser have nothing to do with railway stations, fitness or actual robots.

It's a difficult language to learn. While aspects of personal finance have been squeezed on to the school curriculum, there's rarely any coverage of investing — unless you had an enthusiastic teacher who enthused about the Shares4Schools competition for sixth-form students.

But the classroom is not the place where we learn how to look after a car, sort out the plumbing, or buy a home. Yet many of us manage to work those subjects out for ourselves. So what's the difference with investing?

The answer is the terrible way that the investment industry communicates with its customers. As an industry, I am afraid we continue to tolerate and promote jargon, to the extent that a parallel industry is needed to explain it all.

For example, investment banks hire content writers to write "jargon busters" — it's almost a must-have if you're to be viewed as a decent investment firm.

Personal finance sections of the newspapers write guides to explain the jargon, often sponsored by investment companies. And the investment industry hires PR and marketing consultants to help communicate with customers in a more appealing way. Yet it is still a barrier to getting started.

• Ask Moira your questions at moira.oneill@ii.co.uk, whether you think they're stupid or not!

Some people wait until they can afford a financial adviser to explain all of this to them before they start investing. This pains me, as the greatest secret to successful investing is "starting early", even if you can only afford to put away comparatively small amounts.

The industry is trying to make things easier for younger, less experienced investors. Robo advice— that term I mentioned earlier on — is a simplified, digitally delivered investment experience where an online investment service will assemble a basic portfolio for you.

Those feeling more confident could use an investment platform where they can buy individual shares and funds — and will find lots of recommendations if they find it difficult to choose. Some funds are described as "passive" as they track an established index of shares, such as the FTSE 100. Others are "active" as they have a fund manager who selectively chooses how to invest your money — and will charge a higher fee for doing so.

Yes, some jargon is unavoidable because of compliance, legal and ultimately the regulator. But who pays in the end? It's the customer.

Jargon busters can help with investment understanding, but they aren't enough in themselves. Financial journalists are often guilty of using too much jargon. Some of my friends say they don't read the financial pages because they "don't understand them". We are all complicit in this misunderstanding. But it is hard to get the balance right.

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I mentioned the FTSE 100 index just now. I could have added that this is a share index of the largest 100 companies listed on the London Stock Exchange. But I worry that this approach will either annoy the seasoned investor, or that "over explaining" will make it even more difficult to get to the end of an article about investing.

The aptly named consumer website Boring Money sums up how many of us might feel about dealing with our personal finances. Its research found that the single thing the industry could do to encourage more people to start investing was to talk about things in "simple English". A good challenge is to explain investing in language that our children (or parents) will understand.

Boring Money's founder Holly Mackay recently found herself explaining investing to her 10-year-old son. "He has a small Junior ISA, invested in a mix of global shares," she says. "When I told him that he owned a bit of Apple, his eyes nearly exploded with temporary delusions of grandeur. I had to burst the bubble slightly by further explaining that if Apple were a person, he would own about one 100th of one eyelash. But you get the point — at its heart, the concept of investing is engaging."

A lot of jargon originated in an era where we had investments "explained" to us by discretionary brokers or financial advisers earning a fat commission. Often, customers just took their advice without asking for further explanation. Thankfully, those days are gone. Now more people, and particularly beginners, are investing on a DIY basis because technology has made it easier, and the reform of the financial advice industry has significantly increased the costs.

Here are some examples of how the industry manages to confuse its customers.

A beginner investor recently asked me to explain the difference between different fund sectors. He had come across funds called "global" and others called "global equity income" and wanted to know the difference. It became clear that before trying to choose a sector, he needed to understand the difference between investing for growth (essentially, the share price going up) and investing for regular income (essentially, the level of dividends that those shares might pay). I attempted my answer, while emphasising that he should challenge me to explain further if he was still confused.

Another beginner had identified a fund to invest in but had then seen a minimum investment level of £1 million on the fund fact sheet. He thought, wrongly, that he was unable to invest in it. I explained that this was the minimum investment level for the trading platform to buy in bulk and then pass on to its underlying investors in smaller amounts. In fact, the fund was available on many investment platforms from £25 a month.

Both investors thought these were "stupid questions". They really weren't. It's time to start asking more such questions. I am happy to try to provide answers for you in my next FT column, and would encourage any beginners to get in touch, either via Twitter or by emailing money@ft.com and marking your email "stupid questions". Only by asking them will you change the industry.

Moira O'Neill is the head of personal finance at interactive investor. Twitter: @moiraoneill

This article was written for the Financial Times and published there on 15 January 2019

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