FOOL'S EYE VIEW
The Universal Equity

By Stephen Bland (TMFPyad)
August 22, 2002

Shares (also known as equities) can be used to provide almost any kind of investment people require. The versatility of shares as an investment device is quite enormous, the downside (if you wish to call it that) being an element of risk, which varies with the approach adopted.

The rather unfortunate thing, though, is how few of the investing population realise this. I am fairly sure that if a survey were conducted amongst ordinary people as to how they would invest a lump sum that is not needed for a long time, only a small minority would think of shares or share funds. Most would respond by either putting the money on deposit or else in some kind of insurance company scheme, I suspect.

It is a cultural thing. In the US, for example, a far larger proportion of the population holds shares than here. It has, though, been changing in the UK, to some extent due to Margaret Thatcher (one of Britain's greatest-ever Prime Ministers in my view) with her policy of floating the utilities. Following from that, we have had the steady stream of free share building society and insurance company floats. All of these initiatives put shares into the hands of people who would never have dreamed in other circumstances of share investing in the normal way.

I don't know how much all this has changed the share buying sensibilities of the British public, perhaps not by that much really. I am not sure that a great number, even of those who hold utilities or free shares, have been convinced into becoming proper share investors. I still see loads of people who may hold some of these but have no interest in investing further savings in the market.

It hurts me that if someone comes into some money, maybe through inheritance, redundancy, perhaps the proceeds of a life policy on a deceased spouse, they will hardly ever consider a portfolio of shares but will in many cases either simply leave it on deposit or rush straight into the arms of an insurance company, maybe propelled there by an IFA.

But the odd thing is that a large number of investors don't need the persuasion of an IFA to do this, they actually believe that an insurance company is the place to go, thanks to a mixture of those disgusting TV ads about how they look after you and the culture inherited perhaps from parents who were even more enamoured of these institutions.

And yet the universal equity provides the answer to the lump sum investor: at least to all except those who do not wish to take the slightest risk whatsoever. Moreover it provides the answer both to those investors who wish to receive an income on their money and those who wish to leave it to grow.

Okay, you don't have a lump sum but wish to save regularly in order to accumulate one. Well, you can't buy individual shares for a few pounds a month, but there are an enormous number of share funds out there that offer this opportunity, from trackers to active funds covering a huge variety of general and specialised geographical and sector approaches.

Risks vary and many funds are quite poor, but that is part of investing in shares: acceptance of responsibility for your own financial life. Becoming a financial adult.

What I am saying is that equities offer something for most  investors. Lump sum, income seekers, regular savers, whatever. The exceptions would include those who need absolute security of income or capital, or both, who should be in gilts. Another would be a short-term investor who has a clear need of the money at the end of that term.

But exceptions apart, far too few people take advantage of this most versatile of investment devices, which is my real point. The reasons, I suspect, are perceived risk and the enormous marketing effort of the competition, compared with an equity portfolio: namely, the insurance companies.

There is nobody to mount a TV campaign to show how an equity portfolio is more likely to fund adland's odious six-year-old through med school than the products of an insurance company, because there is no money in it for the suits.

This article was orginally published in February 2001.