Crawl, Walk, Run

How to begin managing your own money — and why most people never quite get round to it.

You don’t need to be smart to manage your own money. You don’t need to be brave. You don’t even need to be especially interested in investing.

You just need to start.

Let me be specific about what “start” means. And explain why most people don’t.

The starting problem

Most people don’t have an investing problem. They have a starting problem.

A current account they’ve been meaning to do something about for years. A workplace pension they’ve never opened. An adviser who calls once a year, charges them a percentage of everything they own, and shows them a graph that has gone up by less than it should have.

None of these feel urgent. None of them, on their own, seem like anything to worry about. So they sit there, year after year, until one day you look up and realise a lot of money has quietly gone missing.

There are really two ways people fall behind with money. They look very different from the outside, but they end in the same place.

The first is inertia. Money sits in cash, or in a Cash ISA, drifting. The number on the statement doesn’t go down, so it doesn’t feel like a loss. Meanwhile, inflation is busy in the background, quietly making each pound worth a little less than it was the year before.

By the time you notice, you’ve been losing money for a decade without seeing a single red number.

The second is outsourcing. Money is handed to a financial adviser, who charges fees year after year for results that, more often than not, are worse than the market did on its own, without any advice or clever tactics. But the balance on the statement goes up every year, so it looks fine.

The bit that doesn’t make it onto the statement is the money you didn’t earn — the gap between what your portfolio did and what it could have done at a fraction of the cost.

Both feel safe. Both are quietly expensive. And neither problem requires you to know anything clever about investing to fix.

Three things you can do (and the order to do them in)

Once you’ve decided to do something, the next question is what. There are three things, and they get progressively more demanding. I think of them as crawl, walk, and run — three layers, each built on the one before.

The first layer is the one thing that beats most professionals: buy a single low-cost fund that quietly owns a slice of the biggest companies in America. Add to it when you can. Then leave it alone. That’s the whole strategy. Most people who do just this — and nothing else — will do better than the average paid adviser.

That isn’t an exaggeration. It’s a quirk of how the investment industry works, and we’ll come back to it.

The second layer is the first layer plus a small amount of selective diversification. A couple of additional funds, for different parts of the world, or different parts of the economy. Done well, this can quietly add to your long-run returns. Done badly, it just makes things more complicated for no real benefit.

The third layer is individual stocks. Specific companies, bought at the right time, held for a few years, and then sold when the rest of the world has caught up. The aim here isn’t to beat the market by a percent or two. The aim is to double or treble your money on each one. It’s harder, slower, requires more reading, and isn’t for everyone. But when it works, it can work in ways the other two never will.

I do all three. You can too — but if you want to keep it simple, the first layer is all you ever need.

The first layer, in plain English

One fund. Whatever money you can spare, whenever you can spare it. Then don’t touch it.

The fund tracks something called the S&P 500 — the five hundred biggest companies in America. Why those five hundred? Two reasons. They include nearly every American name you’ve heard of — Apple, Microsoft, Amazon, Google, Coca-Cola, Visa — plus hundreds more that quietly dominate their industries without you ever noticing. And as a group, they have made their owners considerably wealthier over the last fifty years. There’s no reason to expect that to stop.

Yes, an American market, even though I’m British — why?

The answer is the track record. Over the last 50 years or more, the S&P 500 has averaged around 10% a year. There have been bumps along the way, but it always recovers

Don’t be fooled into investing in the FTSE 100 just because you’re English — that’s gone nowhere for years! It doesn’t matter where you live, investing is global now.

You buy this fund inside a Stocks & Shares ISA, or inside a SIPP, so the gains are sheltered from tax. You decide how to put money in — a monthly direct debit so you don’t have to think about it, lump sums whenever you have them, or both.

The fund company does the rest — buying the actual shares, collecting the dividends, putting them back to work. You don’t have to read the financial press. You don’t have to know what the market did this week. You don’t have to do anything.

A note on cost, because this is where the magic of the first layer really sits. The fund company’s fee for running this is tiny — a fraction of a percent a year. The one I use is 0.07%.

To put it in everyday money: for every £10,000 you have in the fund, they take about £7 a year. A financial adviser doing roughly the equivalent job typically charges around £200 a year for the same £10,000 — and then puts your money in funds that charge a hundred or more on top.

Compounded across a working life, that fee gap is HUGE.

£5,000 left in a cheap fund for 30 years turns into around £85,000. The expensive route gets you to £38,000. Less than half. Same market. Same work. The rest is what gets quietly skimmed off the top before it reaches you.

Here’s the quirk we said we’d come back to. Around 85% of professional active funds fail to beat a simple index tracker over fifteen years. Some years a manager beats the market. Almost none do it consistently — and the ones charging you to try are taking their fee whether they win or lose.

That’s the first layer. It isn’t exciting. It isn’t interesting. It works precisely because it isn’t either of those things.

For a great many readers, this is the whole article. Set up the fund. Set up the contribution. Get on with your life.

What the other two layers are for

If the first layer is enough for most people, why bother with anything else?

Two reasons.

The first is curiosity. Once the first layer is running, and you’ve been ignoring it successfully for a year or two, some readers want to know what else is possible.

Are there other markets worth a slice? Are there parts of the economy that go in and out of fashion in long, predictable waves? Can you do a little better than just owning the index, without taking silly risks?

The answer to all of those is yes. That’s what the second layer is for. It’s still mostly about owning funds rather than picking stocks, but with a thoughtful tilt toward markets and sectors that look better-priced than the rest.

Done patiently, it can add a few percent to your long-run returns, and reduce your downside in the bad times. Not life-changing on its own — but worth the small extra effort if you have the appetite for it.

The second reason is the bigger one: outsized returns. The first layer gives you the market’s return. The second layer gives you a little more than the market and reduces your risk a bit.

But the third — individual companies, bought when they’re out of fashion, held until they’re not — gives you the chance of returns measured in multiples, not percentages.

A worked example from my own portfolio. Last summer I bought shares in a well-known American technology company at a moment when nobody wanted to own them (ok, it was INTEL). The price had collapsed. The headlines were terrible. The underlying business was still sound — it just wasn’t fashionable.

I held it for nine months. I sold it a few days ago, for nearly five times what I paid.

That kind of return doesn’t happen often. It happens because of patience and preparation, not cleverness. And it happens on top of the first layer that’s still running quietly in the background. The third layer doesn’t replace the first. Nothing replaces the first.

I’ll write about the second and third layers in more depth in future pieces. They’re where the interesting reading is. But the foundation is where the money is.

The hard part is the starting

Most of what makes ordinary people genuinely rich over a lifetime isn’t cleverness, or nerve, or insight. It’s having taken the first step many years ago, and then mostly not undone it.

The first step is the hardest one. Not because it’s complicated — it isn’t. Because it requires you to admit you’ve been putting it off, and then do something about it today.

You don’t need to be smart to do this. You don’t need to be brave. You don’t even need to be confident you’re doing it right — once you’re in a low-cost fund that owns the biggest companies in America, “doing it right” mostly takes care of itself.

You just need to start.

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I am not a financial adviser. Nothing here is personal financial advice. Investing involves risk and you can lose money. Please do your own research before making any investment decisions.