Investing in a time of unknown unknowns
Anecdotally, the period between Christmas and New Year is the busiest for brokers and platforms as, with time on their hands, people finally get around to opening an account and starting their journey to financial independence.
In the same way, accounts were opened in record numbers during lockdown because people sought certainty and control in unnervingly unfamiliar times - ‘Coronavirus lockdown fuels spike in DIY Investing’.
But as we eye an increasingly uncertain future, financial first footing could see geopolitical upheaval vying with social, economic and environmental crises as the key influences in the year ahead.
DIY Investor was founded in the belief that people would inevitably have to take more personal financial control as self-reliance replaced state provision.
In the last ten years that conviction has only grown stronger, but there is a very real threat that the financial certainties we have relied upon are no longer a given; possibly tipping the debate from carrot to stick, those that do not make additional financial provision, could face a seriously diminished quality of life in retirement.
And the warning signs are there for all to see. Women born in the 1950s may have thought they had everything under control as they entered a glide path to their autumn years that included access to the state pension aged 60.
However, the 1995 Pension Act hiked that to aged 66 today, throwing plans for potentially millions of women into disarray. Chancellor Rachel Reeves recently confirmed that no compensation would be paid; I’d be a bit ‘Waspi’ too.
There are almost too many metaphorical elephants to consider.
Adult social care is just another political hot-potato with the potential to scupper the best laid financial plans; fully 25 years after Labour’s plans were dubbed a ‘death tax’ and 18 years since the Tory version was derided as a ‘dementia tax’, Health and Social Care Secretary Wes Streeting, has just announced yet another enquiry, due to report in 2028.
It is an intractable problem that sucks in questions over other key issues such as low pay and immigration; there appear few grounds for optimism, and the sky-high cost of residential care could blow away even the most diligently constructed financial plan.
Whether it is better to have striven and had your nest egg taken away, or to never have lifted a finger, is philosophy 101.
Exaggerating only for effect, what about when Doge tsar Elon Musk, high on the Reform victory he funded, is rewarded with a brief to improve efficiency in the NHS.
On day one he identifies treatments and procedures that will no longer be automatically funded and hands you a menu of pricing options for you to fund your own care.
Too fanciful? Didn’t you once have an NHS dentist.
Those not wishing to be subject to the vagaries of a government struggling to fill the ‘black hole’ or Trump tearing up the Net Zero playbook, simply must weigh in.
And that is why DIY Investor will redouble its efforts to make understanding and analysing risk, an integral part of the investing process.
In 2002 US Secretary of Defense Donald Rumsfeld told us there are ‘unknown unknowns’ and introduced the ‘Awareness-understanding matrix’
It’s not as complex as it may seem at first glance, but if universally adopted, and delivered alongside an assessment of probability, could provide a standardised way of conducting apples-and-apples comparisons of all kinds of investments.
Knowing and accepting that there are unknown unknowns is part of acknowledging and accepting risk and a basis to move forward as an investor.
Now, more than ever - ‘Do it Yourself, Do it With me, Do it For me; just don’t do nothing!’ Happy New Year.
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