The Notebook: Retail investing lessons from some of Britain’s top performers
Looking to diversify your portfolio? Interactive Investor’s Camilla Esmund lays out her no-nonsense guide for retail investing in today’s Notebook
A no-nonsense guide to retail investing
Inspired by a close friend who told me there still isn’t enough out there outlining investment options for everyday investors, today I’m doing a no-nonsense guide on what investors put their money into at Interactive Investor (II). There is no ‘perfect’ recipe for splitting your money across investments, but we are the second largest investment platform in the UK, so this should be a good source of inspiration and information if you are looking to revamp your ISA portfolio.
We’ve tracked the performance of II customers for nearly five years. Despite considerable volatility, over the last four years and nine months (to 30 September 2024), the average II customer returned 23.7 per cent. That is impressive. What’s even more impressive is how consistent this performance has been.
So, what are our top performers investing in? 35-44 year-olds have been leading the way over the longest time frame. The portfolios are diversified, but this age group has the highest weighting to funds (a type of pooled investment, which gives investors access to a spread of companies), and they also have the highest weighting to Exchange Traded Products (ETPs) – largely consisting of ETFs (Exchange Traded Funds). ETFs can offer a way to invest in a wide range of companies without picking individual shares. However, unlike an ‘actively managed’ fund or trust, ETFs are usually ‘passively managed’. This means they track a predefined index of stocks, rather than trying to beat the market. As a result, ETFs usually have cheaper fees.
Meanwhile in terms of gender, women on II continue to marginally outperform men over the longest periods, while the reverse is true over shorter time frames.
Investors have also been investing in the bond market. The popularity of bonds has inched higher on II over the last quarter. Investors looking for income have more options and can take less risk, as the safest types of bonds, such as gilts (UK government bonds), offer inflation-beating yields of around four per cent. Some investors may also be looking to make the most of the attractive tax status of gilts.
The money mental health crisis
Maybe you have seen the recent TV advert from Barclays which cites that “studies show that our relationship with money is formed from the age of seven”. Having had a dig, there is indeed research which looks at habit formation and learning in young children and how this relates to the emotions and skills around managing money. It’s a shocking statistic that also speaks to the emotional complexity of our relationships with money.
In fact, in our own research, 41 per cent of respondents identified finances as the external factor most impacting their mental wellbeing. This rose to a staggering 49 per cent of people aged 40 or under. Personally, I’d go as far to argue that this is a crisis.
Money worries go deeper than the numbers; it is woven deeply into our sense of security and control. We need to keep creating safe and supportive spaces to speak about money worries or queries. A chat with your mate over coffee could make the difference between someone worrying they cannot pay their bills to realising they could speak to their provider to discuss options, for example. Help is always available. For more resources and support on money and mental health, there is a brilliant page here from Mind, the mental health charity.
Recommended reading
What They Don’t Teach You About Money: Seven Habits to Unlock Financial Independence is a must read for all. It is written by Claer Barrett, an award-winning FT Money journalist, who has a great ability to cut through the financial noise and get to the real heart of issues for consumers – i.e. what does this mean for my pocket? And what can I do to change it? In keeping with the theme of today’s note, the book also explores our emotional relationship with money and how we can harness those to form new habits. (If you also enjoyed James Clear’s bestselling Atomic Habits, I feel like you will enjoy this one.)
A must-watch TV series: Simone Biles: Rising
The ‘GOAT’ for a reason. Simone Biles encapsulates the quiet confidence and strength of prioritising one’s mental well-being despite the pressures that face many elite athletes in their career. Resilience is not about how quickly you bounce back – it’s about how fully you recover. A must watch!
Camilla Esmund is senior manager at Interactive Investor