Is it possible to make money from the stock market?
Of course it is, but whether the average man in the street will ever make any money is another matter.
It is understandable that those of us seeking to improve our financial lot would be confused into thinking that this was a highly regulated and highly professional industry but unfortunately the truth is somewhat different. The expensive suits and confusing language hide a much more unpalatable side.
Those seeking financial freedom need to look carefully at the facts before they start writing out cheques for any sort of investment. Consider this:
The Financial Services Industry has seen at least five miss-selling fiascos in the last twenty years and it is the little man who has paid the price. Whilst there is much huffing and puffing whilst expensive compensation schemes are put in place, the amount returned to the ‘victims’ is a fraction of what was lost.
- Mortgage Endowments mainly sold between 1980 and 2000 have left three million people with a shortfall of around £40 billion.
- Personal pensions have been miss-sold to two million people.
- AVCs miss-sold to over 100,000 customers.
- Split Capital Investment Trusts miss-sold to around 50,000 people who have lost around £600 million.
- The banks are being fined millions of pounds on what appears to be a monthly basis for fraud. We have witnessed fines for manipulating the gold market and Libor.
- Remember, this is all in the last 25 years. You have lived through this. You have read about this in the newspapers.
And all the time, millions of pounds have been paid out in commission fees – and still are.
How have stocks and shares performed over the last six years?
Thanks to endless Quantitative Easing by central banks around the world there has been a huge flow of money into the stock markets. From a low of 3600 in 2009 the FTSE 100 has risen to an incredible 6600 just six years later. Fuelled by historically low interest rates and easy money the markets are literally on fire. You could be forgiven for thinking that against this background the economy must be doing very well. Nothing could be further from the truth. Over the last six years the global economy has been on its knees, mired down by massive debt and expanding government spending programmes.
Was the dot-com boom not enough to give us all the lessons we will ever need about the markets? I suspect not.
So where does that leave investors like me and you?
In my opinion it is important to have a spread of investments in order to limit the risk, but for me, just having a pension which is exposed to the success or failure of the stock markets is more than enough exposure in that area.
As a result my own personal investment in listed stocks and shares represents less than 5% of my wealth. As we enter 2016 I am driving that figure even lower to ensure I am out before what I believe will be a major collapse in the markets. However, I continue to invest in well-run start up companies where the gains are typically 70% a year and you can read more about this in my newsletter.
I also like gold and silver stocks right now which I consider to be undervalued and I am also keen on both physical gold and physical silver which are at five years lows. The downside here seems very low to me, they cannot fall much further or the mines will stop production but the potential upside in huge. Gold cannot lose all of its value – the same cannot be said of stocks and shares which are more than capable of losing every single penny you put in.
What other investment product has the potential to lose 100% of its value? Not all many when you take physical possession of the item in question.
Property investment is also strong in this regard provided you can afford the mortgage each month.
I do not own a single property that is worth less than I paid for it. Admittedly not all have seen their values go through the roof, and I accept that they don’t go up in value in a straight line, but at least I understand what I am buying. In my opinion the worst property investment will almost certainly be a better bet than the worst investment in stocks and shares.
I put gold and silver in the same category. It is inconceivable that a gold Sovereign will ever be worth be worth absolutely nothing at all. When you put it like that it is quite remarkable that we put so much faith in paper currencies and stocks and shares, don’t you think?
Those seeking financial freedom should understand the products they are investing in, and, more importantly understand the risks.