The news in any week masks a multi-faceted story, the way a journalist chooses to portray that story has a huge impact on consumer reactions. This week there has been criticism of fake news stories, as unknown media outlets publish large volumes of content. But a story, even one of the financial markets, is hugely personal. The only reason we care about the financial markets is because of the impact it has on our individual wealth, at times like this it is important to take a step back and focus on your goals, and the story you want to create.
Stop paying too much to invest
The cost of investing is something that investors everywhere need to pay attention to at the moment. Costs eat into your returns and have a negative impact on your overall wealth. Unlike in some markets, cheaper does not mean worse when investing. There are different types of asset management, either active or passive, and typically active management is more expensive.
Today the Financial Conduct Authority released their interim report on a review of the asset management industry. They have found that there is a lack of price competition in a number of areas which is having a negative impact on returns for consumers. Interestingly the report looks at the level of risk various managers take. In theory an active manager should take more risk, as you pay a higher fee in the hope of higher possible returns. But what is actually happening is that a lot of the active funds are not taking on more risk, instead acting more like a passive index funds, while still charging you a higher fee.
Investors need to ensure they understand what they are paying for and that they receive value for this, it isn’t always easy as the industry needs to be more transparent, but keeping your costs to a minimum will help to grow wealth over time.
Inflation lower than expected
Inflation was expected to hit 1.1% this week, but instead the data released showed that prices had risen 0.9% against the same period last year. Before this raises hope of cheaper Marmite, I’d like caveat that this isn’t really a cause for celebration.
The reaction from the markets to this news saw the pound weaken against the dollar (again). This news comes at the same time as expectations for faster growth in the US. Mixing this with higher US inflation and interest rates could result in a stronger dollar. So unfortunately American brand lovers might just feel the impact at the till.
Those investors with a globally diversified portfolio should be pretty well protected against a weaker pound. The strength of the UK economy isn’t that clear at the moment, higher inflation and higher interest rates could make life a little tougher in 2017. This is an important reminder that investors need to look at data releases from a variety of perspectives.