I have a confession to make. It’s time, I feel, to come out of the closet. The fact is, I’m an equities man. I get my kicks from buying ordinary shares.
This confession has been prompted by the growing number of articles devoted to non-equity investment. Property and bonds have been demanding ever more attention, and hedge funds, structured products and guaranteed funds, while frequently based on equity markets or individual shares, are also increasingly in focus.
All this is very healthy, of course. It widens the options available to investors and allows those charged with putting together an investment plan to cater for a range of needs and attitudes. Yet I find that the greater availability of choice makes decision-making more difficult, not easier.
This array of products does not necessarily protect you from loss or bad judgement. Precipice bonds were easy to sell on the back of consistently rising markets but the inherent risks were always there. It was just that people did not understand how they worked or what the worst case scenario might mean.
And there’s the rub. More options demands a greater understanding of financial products and not just by the adviser. If the end-investor is not sure what they are getting into, there is a risk that they will blame whoever persuaded them to part with their money if the investment does not live up to expectations.
Oh for a return to the simple life. Not that equities are that simple. They are at the riskier end of the investment spectrum. Companies can, and do, go bust and shareholders are last in the queue to be paid. The pace of commercial life has added to this risk. Even large companies can go out of business with little warning these days. Caveat emptor is a motto that should certainly apply to equities.
But the other side of the risk coin is that reward should be higher. Arguably, the higher the risk, the higher the potential reward. Equally, the more reward you receive, the greater the risk that all will turn to dust in the fullness of time. Technology investors made buckets of money in the second half of the 1990s but most of their gains evaporated in the first couple of years of the new millennium.
Investors who piled in to smaller companies as the last bear market drew to a close have not done at all badly. Even the mid-cap stocks have rewarded out of all proportion to the market leaders. From the beginning of 2003 until the end of last October, the FTSE 250 rose by nearly three times the amount of the FTSE 100 Index.
The case for equity investment is still there, even if it continues to merit a health warning. Indeed, my message to investors for some years now has been that an equity-only investment strategy is flawed. That is a hard thing to say for someone who started out trading in shares face-to-face on the floor of the London Stock Exchange.
I expect even more asset classes to be made available as the rocket scientists of the fund management world endeavour to find a solution for every conceivable investment taste. One thing is certain, though. Equities will remain the bedrock for long-term investors. Trust me. I’m an equities man.