DIY Investor Magazine 26: Let’s be careful out there

As we approach stumps in a year that most will be keen to forget, an abiding legacy of the pandemic will be that people have taken control of their financial futures like never before.

 
Some were walloped because they lacked a rainy day fund, some sought greater certainty and control, and others had FOMO as markets rebounded. Whatever their motivation, DIY brokers and investing platforms reported record levels of business, with younger investors coming to the fore.

When DIY Investor launched in 2014 it was in the belief that financial self-reliance would inevitably replace state support and that improved education and good content were the way to inform and engage the next generation of investors.

Never has that requirement been greater; exceptional circumstances have delivered huge opportunities to the ‘brave’ and posed grave danger to the unwary.

Extreme market volatility fuels debate and can divide opinion along generational lines on social media; those of us schooled to believe that ‘time in’ the market was key may begrudgingly doff our titfer to #InvestorBOI97 (DYOR) who got his timing right on Rolls-Royce and saw his investment rise by 267% to 128p.

Not gamey enough for you? Marketbeat currently has a target of 393p on the stock – a 205% uptick for just backing a company that is, er, one of the UK’s most exposed to the EU and derives 50% of its revenue from civil aviation which will face a climate crisis if it survives the pandemic.

It could be suggested that because of their long investment horizon, younger investors can afford to chance their arm, but the fact that they are gravitating toward more ‘traditional’ online brokers hopefully suggests that they have taken a long term view on wealth creation.

Most will not adopt a harum-scarum approach, but that doesn’t mean they have to miss out on the markets’ positive response to news of a vaccine and the secular winners in the ‘new normal’; the managers featured in this issue are testament to the wealth of knowledge and expertise that power their investments – delivering intellectual, diversified portfolios in pursuit of their objectives.

Hargreaves Lansdown handled close to 1m trades a month as bargain hunters sought value from over-sold companies; AJ Bell added a record 63,239 users in the year to September – a 27% increase ‘as new, younger clients flocked to put money in volatile markets’.

The platform also revealed its most bought funds and investment trusts in the six months following lockdown, and how they performed; Fundsmith Equity (now +36%) was its most purchased fund, Scottish Mortgage (now +135%) its most bought trust. On average its top 10 funds returned 48.1% over six months and its trusts 58.3%.

So, it’s now all about value investing – picking up ‘quality’ companies at low prices? Well, not if today’s headlines are anything to go by – ‘Airbnb IPO share price doubles in Wall Street trading frenzy’.

The crisis also resulted in the cancellation of many dividends and unfortunately large numbers of income-seekers were lured into investment scams as the sharks circled.

The Investment Association reports that scams have quadrupled since lockdown with fraudsters bagging £657m using sophisticated techniques such as fake price comparison sites, cloned websites and search engine promotions.

What does a scam look like? Action Fraud warns ‘Just because a company has a glossy website and glowing reviews from ‘high net worth’ investors does not mean it is genuine’.

Unfortunately it appears that if it’s mute and glides like a swan, it could still be a duck; let’s be careful out there.
 

Click here to view DIY Investor Magazine 26