Q19: Who’s responsible for your investments?

Finance and faith share some big similarities. Have faith in yourself and take control of your money.

I attended a faith-based boarding school. Every Sunday for five years we were taken by bus to attend St Stephen’s, the local Presbyterian church, all dressed up in suits and straw boaters; very Tom Brown’s School Days. Living dormitory-style among 250 other adolescents was, as they say, “character building”. I actually enjoyed it and, although the markets were very unsophisticated in the late 1970s and the Australian dollar still under a floating peg, it set me up for a career in investments.

At church, in full voice, we sang the hymn God Moves in a Mysterious Way. Originally written as a poem by William Cowper and entitled Light Shining Out of Darkness, it tells the story of the unfathomable workings of an invisible deity. You may be wondering what Cowper has to do with finance and investment but when you take a closer look it will become clear that Finance and Faith are remarkably similar products. I’ve reprinted the poem, and my financial translation of it, at the end of this article.

Finance rests, at its core, on the premise that an investment made now, as an alternative to current consumption, will yield some unspecified return over the holding period: defer gratification today to gain an increase in future spending power. It’s classic “time value of money” stuff and, with a nod to inflation and risk, it’s a theoretically sound proposition. Investment, however, comes with a few harsh caveats. There’s no promise of any particular return, and no contractual obligation to make good on any promise. In fact, investment firms will (in a small-sized font) explicitly declare that they can’t guarantee any particular return and that yours may actually be negative. 

St Stephen’s also has, at its core, the premise that an investment now — of the typical Presbyterian, self-denial variety (plus, of course, a regular donation on the collection plate) — will yield some glorious return at the end of the holding period. In this case, unfortunately, you have to die to collect.

Investment and religion share a common conceit: the allure of a better, brighter, future in return for the deferral of gratification now. Both are at the mercy of an invisible, unknowable higher power which is capricious and often vengeful in its activities. While the marketing material for both these businesses highlights their outrageously fabulous benefits (whether it be eternal life and perpetual salvation, or a convertible sports car for your retirement years) they both tend to favour a complex explanation of the detail as to how the payoff might be achieved. This helps to give them a magical allure and the mystique that only they can understand what’s really going on; only those with the knowledge can help you.

I’m pretty certain that you don’t know the meaning of such ecclesiastical terms as soteriologytransubstantiation or filioque, and you’re sure to be similarly bamboozled by some of the jargon employed by investment people. If a “cyclical bear consolidation in a secular bull market” leaves you open-mouthed in wonder try understanding reports on investment performance, especially when they’ve used every euphemism or obfuscation for “we lost your money”. Assigning blame to a “re-rating of growth assets” or to “the inevitable correction” means little when you see your nest egg dropping in value. (Actually, most of the verbiage spewing forth from the finance industry means little, no matter which direction the markets take; and why was the correction “inevitable” only in hindsight?)

It often seems that the jargon employed by financial companies reflects the same sentiments as Cowper’s “mysterious ways” where the arcane whims of the supreme being are replaced with the unpredictable vagaries of “the market”. Of course, a loss certainly wasn’t the fault of the fund manager, it was just “the market” doing what it does, just as whole village being wiped out in a landslide is an act of god, completely out of anyone’s control. A positive investment result is usually attributed to the manager’s skill just as a remarkable recovery from a medical emergency is due solely to the power of prayer.

Investment and religion share one common behaviour: the total abrogation of responsibility when their fanciful claims don’t eventuate. This isn’t tolerated anywhere else in the commercial world. Additionally, both institutions feel fully entitled to take the credit when things go well: it’s Heads they win, Tails you lose. Hedge funds — the “evangelicals” of the investment world — have taken this to another level with their “2 and 20” fee scam. It’s as rare as a verified miracle that a fund manager will pay you back when they lose your money. 

Perhaps I’m too cynical. A market exists for faith and funds management because people, after all, are only human. Both markets capitalise on our natural fear of the future and both claim some control over it. Our dread of the unknowable leaves us vulnerable to the tactics of those who would like to make us feel more comfortable (for a fee). They then scare us into “needing” them by making the issues and narrative incomprehensibly complex. No wonder they had a Royal Commission into the banks.

It turns out that you don’t need to be fearful of your future, either temporal or spiritual. In both the financial and the metaphysical realms, you can do it yourself.

I can speak only for the investment domain. Complexity is the enemy of the investor. The range of simple, low-fee products on offer and their accessibility through on-line trading platforms make the process of investing straightforward for all investors. Many low-cost robo advisers and fund managers offer well-diversified, multi-asset portfolios which are generally suitable for the majority of investors who are looking to ensure their financial security. A realistic view on your own risk tolerance, time horizon and investment goals, plus the inner strength to stay the course when markets fluctuate, are all that’s required. High-complexity investment products might make you sound cool at a barbecue but often the risk, fees and due-diligence costs don’t make them a viable proposition for someone looking for a comfortable retirement. They even give a lower returnthan simple passive investment funds.

With DIY comes control, and with control comes accountability. You make your own decisions and are responsible for the outcome, positive or negative.

You are your own future. Why trust it to someone else?

Light Shining Out of DarknessLies Coming Out of Wall Street
God moves in a mysterious way
His wonders to perform;
He plants His footsteps in the sea
And rides upon the storm.
The market is very scary
It jumps around a lot
It’s unpredictable
You need us to assure your future
Deep in unfathomable mines
Of never failing skill
He treasures up His bright designs
And works His sov’reign will.
Our god-like quant team
Is pretty good 
They made up lots of complex stuff
You wouldn’t understand it
Ye fearful saints, fresh courage take
The clouds ye so much dread
Are big with mercy and shall break
In blessings on your head.
Leave the hard part to us
We’ll get you through this
You’ll be OK
(Don’t mention the fees)
Judge not the Lord by feeble sense,
But trust Him for His grace;
Behind a frowning providence
He hides a smiling face.
Don’t ask too many questions
Trust us. We did really well last quarter
We’re richer than you and have nice suits
But we’re good people. Really.
His purposes will ripen fast,
Unfolding every hour;
The bud may have a bitter taste,
But sweet will be the flow’r.
You’ll see at year-end
And in our monthly reports
The up-front fee may be steep
But you might get a pay-off one day
Blind unbelief is sure to err
And scan His work in vain;
God is His own interpreter,
And He will make it plain.
But we could get it wrong
Woops. Sorry
Didn’t you read the fine print?
“Past performance is not a forecast”

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