Investment for beginners?

investment olly.PNG

Perhaps because I’m paying him to, my 20 year old is paying some attention to where his pension is being invested. I say “is”, but our first contribution to his workplace pension is awaiting his opt-in. Meanwhile he’s asking – so what’s happening to my money once I sign up?

To answer this question I pointed him to NEST’s Fund factsheets. Although the lad’s been to university, he remarked that following  this link was “scary”.

Despite the non-intimidating invitation (above) a NEST factsheet is not likely to make much sense to more than a handful of NEST’s 7,000,000 members.

Here for instance is NEST CIO explaining what’s been going on in the last quarter.

fawcettThisis not the stuff of everyday reading. What are “strong fundamentals”, what’s a “monetary policy tightening cycle” . What does “normalise interest rates” mean. This is not a commentary designed to be read by NEST members, it is aimed directly at people like Mark Fawcett who do factsheets for a living.

The impression that a 20 year old gets when reading this stuff is “get the f*ck off my land”.

Ownership of the “investment piece” is definitely not in the hands of the beneficiary but the investor and Mark’s language makes it clear that it’s him and his chums who will be talking with each other.

Factsheets are universally written like this, to use the awful word , stray readers are being “normalised” to the language of the experts.

How green is my pension?

The DC funds of NEST and (as announced yesterday WTW’s master-trust “Lifesight”, are increasingly invested in a responsible way with an eye to environmental, social and governance best practice. We might well asked why we have to include the word “increasingly”, but that’s because they are the exception not the rule.

Despite lots of noise, L&G have still not adopted its own Future World fund into its default. Despite having been CIO at B&CE and  People’s Pension for well over a year, the People’s Pension default shows no sign of green.

fawcett 2.PNGNEST’s recent announcement that it is going to increasingly “go green” in its investment strategy, translates into this statement in Mark Fawcett’s commentary.

This is great for finding out what Mark’s team are up to , but it is totally disconnected from the member’s purchasing experience. If my son wants to purchase fund management from NEST, should he be investing in the NEST commodities fund -if so – how does he do that? Or is that fund part of the foundation or accumulation phase of the NEST default. Or is it part of the NEST Ethical Fund? There are no answers to these questions in the Commentary and (short of phoning the NEST investment team up and asking) I know no way of finding this information out.

It is only when my son scrolls down the PDF to the individual fund fact sheets themselves, that he gets any answer to the question “where is my fund invested”. Each fund factsheet lists (as it has to do), the top holdings of the fund. The small print tells you that these holdings are “equities” and that 40% of the fund is invested in other assets such as “dynamic risk management” – whatever that is!

Apple, Amazon and other household names are on the list but there’s no comment on what makes them any more or less ethical, nothing here that a 20 year old engaged investor can get his teeth into.

Once again, there is a sense that this factsheet has been written for other investment professionals, the 7,000,000 ordinary members of NEST should “get off their f*cking land”.

Which is a shame, because Fawcett is getting it right with his fund management, NEST is producing the goods – year after year and has already got a magnificent story to tell.

We are (almost) all “beginners”.

Turn on your phone and go to its app store, you won’t find a NEST app that will tell you what you are invested in if you are in the default. There is no signposting to investors who might want to explore ways to get their money more responsibly invested. There’s no information or links that helps people understand the complicated terms in the factsheets (Sordino ratio” anyone). The assumption is that you either are in the club or need to go away and get your CFA exams).

But life and investment aren’t and shouldn’t be like that.

A very large proportion of NEST investors (possibly a majority according to recent Ignition House research) , do not know that they are invested. They know nothing more about how NEST their money is managed than how their bank deposits are managed.

They assume that their workplace pension should be invested responsibly and are shocked when they hear that it might not be!

People are used to be quoted interest rates when they give money to other people, they get that giving other people money means that you should get back more than you put in. The idea of investing and taking risk for more reward is totally new to many if not most of the 10m new savers who are – like my son – joining workplace pensions.

We are almost all beginners, but when we try to find out about what is happening to our money, we are treated as expert investors!

Surely there is space in the market for an organisation to take all the guff out of these investment commentaries and explain what is going on to people in a way they can understand. If the Government and its own pension can’t do this, then we need sane and sensible experts like Romi Samova to do it for them.

People like my 20 year old son will soon become disillusioned by the journey they are taking to answer the question “where is my money invested”. They want straight answers to a straight question and they find the investment commentaries, the factsheets and the ivory towers of those who write them, a big turn-off.

99% of people in NEST – don’t stray from the default. I would suggest that 99% of that 99% have never found out anything about where their money is invested – even if they looked.

Reading NEST’s investment commentaries makes me more determined than ever to help ordinary people get to know their workplace pensions.

I don’t need to be an investment expert to do that – and it wouldn’t help if I was!




About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in accountants, actuaries, advice gap, NEST, pensions and tagged , , , . Bookmark the permalink.

6 Responses to Investment for beginners?

  1. Ron Godfrey says:

    A good summary of the disconnect between people and their ability and motivation to engage with their money!

  2. Adrian Boulding says:

    I didn’t get why Nest have excluded Palm Oil, a commodity that features in half of the packaged products in supermarkets. I’ve already washed in it and eaten it today and it’s only 8 o’clock.
    The WWF who I respect enormously say we don’t need to give up Palm Oil. Just ensure that is made in an environmentally friendly manner, which it can be.
    Simply cutting Palm Oil our of the fund may be paying lip service to the ESG cause (oops, your lip balm or lip stick probably contains Palm Oil too!)


  3. Dave C says:

    Even if you knew what normalising rates, good fundamentals etc etc meant, you wouldn’t do any better.

    Nor do those writing fact sheets.

    They may as well say ‘line went up, you’re wealthuer’, or ‘line went down, you’re poorer’

    Ask any of ‘them’ about their net gains through 2006 and 2008 and I’m sure they’re all negative.
    So much for knowing what’s going on. And enjoy history about to repeat.

  4. George Kirrin says:

    Henry, it’s not just new savers who’re being let down by inappropriate reporting.

    Trustee boards and investment and governance committees up and down the land get similar guff reports to Mark’s, telling them about a few recent “big picture” events or opinions, perhaps to distract them from looking instead at longer term investment performance, from following the money.

    Even NEST’s website information on unit prices doesn’t get close to what we should be looking at here. Yes, if I compare, say, the starter fund unit price at the end of August 2013 with the same unit price at the end of August 2018, that 5-year old unit purchase seems to have added around 9% per annum, which is good enough (perhaps too good?). But investors won’t have only units from a single date in the past, but rather will have built up a seeies of monthly purchases.

    In short, we should be told money-weighted rates of return, not time-weighted. We should be told about reinvested yield, if any, and we should be told how that compares with other starter funds and, perhaps, market-weighted comparators for yield and capital return.

    I get the impression, Henry, you give Mark Fawcett and others maybe 8 out of 10, whereas I’d give them 2 out of 10.

    • George Kirrin says:

      And given we’re now in November, where are NEST’s unit prices for September and October?

  5. Simon Grover says:

    We’ve invited NEST to put our 1-minute animation ‘Where does pension money go’ on their website

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