How do you get unstuck from financial confusion?

To start your investment journey, get unstuck with a self-propelled change of motion

At the height of his fame, artist Damien Hirst was making millions. Lots of millions. $200 million in two days, for example. He had no idea what to do with it. Like Sherman McCoy in Tom Wolfe’s The Bonfire of the Vanities, he didn’t know where it was going, but he knew it was going somewhere; ‘you can very quickly spend any amount of money’, Damien told Idler magazine.[i] People chase money to feel more in control. Yet the opposite often happens: ‘When you don’t have control, you can’t see the beast. You have a sense something’s wrong but you can’t see the mess,’ Damien continued. It’s an archetypal example of money, whatever its amount, and however fast its flowing, leaving people feeling stuck.

My personal business model as a self-styled financial psychologist was a controversial one: I wanted to make myself redundant. This was unsurprisingly unpopular with my boss. It was more surprisingly unpopular with my clients. The way I saw it, I didn’t pay myself for financial advice, so if I could get clients to where I was, they wouldn’t need to either. It can’t be good financial advice to recommend spending money on something unnecessary.[1] This was not about knowing what I knew, but living with money the way I lived.

People seek financial advice for the same reason they seek any advice: because they feel stuck. Someone can want to change, can imagine what being changed would look and feel like, can attempt all sorts of ways to change, but never actually change. The way clients saw it, however, was that they were paying not to get unstuck, but to ‘allow’ them to be unaware of being stuck. This has the advantage of being easy, but the disadvantage of not working. It looks like it works, because it works better than nothing, but it doesn’t work on the meaningful sort of level that leaves someone feeling like they can comfortably fire the adviser.

It doesn’t work because to feel stuck is to experience an existential inertia, and external treatments can only salve, not solve existential issues. Etymologically, to suffer from inertia is to be ‘unskilled’, ‘inactive’. Unable to go anywhere under one’s own steam. To basically be dead. Even if you’re drifting somewhere, you’re essentially going nowhere. The inert body is both not changing and resistant to changing because it is resistant to self-propelled changes of motion.

Having no money doesn't bug people in the same way as having no idea how to think about money, or to know what to do with it when they do have it. Just as it’s now easier to find food but harder to find nutritious food, money’s easy to spend, but difficult to spend well. We’ve become better at living expensive lives and worse at living good ones.[2] Everybody has the ability to live a Good Life, and money is no excuse for why we don't.[3]

Personally and professionally, I’ve been inside the heads of the people that other people think they want to be (or rather that have what other people think they want to have). Business folk, film folk, sport folk, idle posh folk… from the boardroom to the pages of Tatler, I’ve examined a circus of rich people’s relationships with money, even if they couldn’t be bothered to do it themselves.

There is no correlation between having money and living well. However, when it comes not to what people have, but how they are with what they have, there is a correlation. I’ve seen what works, and what doesn’t. The ways that work are the same, and the ways that don’t are too. It is simple, and systematic.

Focusing on embracing what works and shunning what doesn’t should be everyone’s aim. Yet if anything, because of the way we’re wired, because of the way society is set-up, and sometimes because of the way the people we pay to help us are incentivised, everything gets flipped: we embrace what doesn’t work, and shun what does.[4]

This needs to change. For the stakes – your life savings, if not your life – couldn’t be higher. And the application – you’re thinking about money right now, and you’ll be spending some soon – could be neither more incessant nor more immediate. A poor relationship with money leads to poor money decisions leads to wasting money. And time. And energy. It leads to wasting your life. It leads to expressing yourself in ways that don’t feel right, but that you can justify in the short-term, conveniently overlooking the ability of the short-term to turn into the long-term when you’re not looking. When the stakes are high and you’re busy looking elsewhere, it can be tempting to hire some help. Unfortunately, the obvious place to turn often doesn’t help at all.

How much are you unwittingly and unknowingly wasting?

Of all the things you can make the effort to learn, nothing in your life is nearly as valuable as learning how to improve your relationship with money

Nothing dodges danger like delegation (or at least nothing dodges having to deal with danger right now like delegation). If you can successfully do this… if you can pay someone to do your worrying for you, to make your earning and spending decisions for you, to guide each of your trade-offs, to reliably allocate your resources in life-enhancing fashion, to think about money for you, and deal with all the physical and mental consequences of doing so, while you enjoy effortlessly fulfilling your potential… then congratulations: this book isn’t for you.

Perhaps that sounds a bit overblown. You just want someone to deal with your investments – to tell you what to own and how to own them, and to handle the associated paperwork (and maybe lend you a few clever-sounding things to say about ‘the markets’ should you be unfortunate enough to end up in company impressed by that sort of thing). You’ll deal with what those investments are for on your own time. This is a service many offer, and many are willing to pay for. But is it a price worth paying? It’s worth checking. Investment is a journey. Your journey. There's no excuse for being taken for a ride.

In the gap between the perception and the reality of financial advice lurk two main dangers: paying unnecessarily high (and largely hidden) fees, and receiving illusory reassurance rather than the real deal.

What would you say if I offered to cover 20% of your entire expenditure, each and every year? What about 50%? 100%? What if I went further, and paid you the same again for the opportunity? No strings attached. You’d take it wouldn’t you?

What would you say if I described to you a most assiduous budgeter, the type that tracked and categorised every purchase, was able to tell you to the penny how much they’d spent on coffee or car insurance or children over any time period… and yet had, neither through foolishness nor fear, missed off their single largest expenditure? An expenditure so large, it was higher than all the other stuff added together. And also grew at twice the rate of everything else, including this budgeter’s wages.

Chances are you’d question my assertion that this person wasn’t a fool. What they, and many other less-assiduous non-fools fail to account for is that the money paid to manage other money is too cool to let itself be seen in budget clubs. Investment-management fees are magic. Not even those that charge them know how much they really are.[5] The investment-management industry is a master illusionist, but an emergent one. Its is a collective, unconscious, deception; its secrets aren’t known by any one participant: all the better to sustain the system that keeps them secret.

We’ll look at this in more detail later.[6] In the meantime, rest assured this isn’t just another warning about high charges.[7] What you need to know now is how easy it is to be misled into thinking that fees don’t matter because it’s all so complicated and scary, it has to be worth it, or because there’s no alternative, or because they’re actually not that large, or because they’re magically paid for by someone or something else, that they don’t form part of your expenditure. Because that is all bollocks.

These mistakes can mislead millionaires into easily – but unknowingly – spending more on investment fees than everything else combined. And completely unnecessarily because the returns never justify them (unless I suppose you put a particularly high value on being able to talk about your brand-name-bank ‘investment guy’ and have curly writing on your cheque book).[8]

Millionaires are merely a magnifying glass: this applies to everyone. If something looks outrageous at the extreme, chances are it’s just as bad an idea when it flies under the radar too.

The second danger is more worthy of focus. For when we seek help with ‘sorting out the finances’, and when we dig a little deeper and understand we’re seeking something about ‘security’ or ‘freedom’ or ‘reassurance’ or even appeasing a fear of missing out, we’re really seeking a better relationship with money. Which is rather more involved than simply stopping chucking money at cowboys. But it’s infinitely more rewarding.

This is why I’ve written this book. Because the lessons learnt from seeing the world through a diverse set of moneyed lenses apply to everyone. They are always important, but without money’s magnifying glass, they aren’t always obvious. This is thrillingly counterintuitive, because the most important lesson is that it’s not about the money.

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[1] Though as we’ll see this is the foundation of the traditional advisory model, both in terms of paying for the advice itself, and what the advice encourages people to buy.

[2] See Trigger #1.

[3] Above a certain threshold, which is way lower than anyone thinks it is. If you’re reading this book, you’re probably above it. More on this in Part 2, Section 1.1.

[4] This triple whammy of errors – how we’re wired, how society is set-up and how advisers are incentivised – runs through every chapter of this book.

[5] Few people believe me when I tell them this, but it is staggeringly common. Not only are the fee structures of the traditional investment management firms opaque to the point of an artform, but the people who receive those fees have no more need to understand them than you need to know how your car engine works to be able to drive.

[6] In Part 4.

[7] A subject plenty have covered well enough already, and for which one needn’t search too hard for horror stories, for example, the JP Morgan broker caught because he churned a bit too much (https://www.nytimes.com/2018/10/09/business/jp-morgan-trevor-rahn.html) or St James’s Place, or every offshore ‘adviser’ in the world.

[8] One crude mathematical example: It’s easy to spend 2.5%-3% unnecessarily. So if you spend £36,000 p.a. on other things, and you’ve got more than £1.2-1.44m invested, you spend more on pointless investment management. It’s not about a single year, though; the cumulative effect is frightening. And it quickly gets much worse – I’ve known people to pay over hundreds of thousands a year into the pockets of people who reliably make less money than the easiest DIY alternative.

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[i] Damien Hirst, interview with Idler, issue 71, Mar/Apr 2020​