Golf and the philosophy of investment

Terry Bond: Diary Of A Private Investor

Pleasure and pain. Turning up at rain-sodden Wentworth last weekend for the exciting final of the World Matchplay golf tournament, I felt delighted when I saved a couple of quid on the entrance fee but downcast because the man at the kiosk had sold me a pensioner's ticket. He barely glanced at me, but it's a bit miffing when you realise the handsomely craggy face you shaved that morning can now get you a bus pass. To avoid doubt, I am still several years away from the morning post office queues.

Pleasure and pain. Turning up at rain-sodden Wentworth last weekend for the exciting final of the World Matchplay golf tournament, I felt delighted when I saved a couple of quid on the entrance fee but downcast because the man at the kiosk had sold me a pensioner's ticket. He barely glanced at me, but it's a bit miffing when you realise the handsomely craggy face you shaved that morning can now get you a bus pass. To avoid doubt, I am still several years away from the morning post office queues.

My main crust comes from investing in shares, and I can keep doing that until my clogs pop. But there are those for whom the thought of giving up work is a daunting prospect. Quiet days pursuing pleasant hobbies are overshadowed by the thought that the simple act of living costs an escalating amount of money now and it is important to horde our savings.

But if you are not an experienced investor, how do you make sure you are doing the right thing? This week I bearded Chris Ring, managing director of NatWest Stockbrokers, in his den in London's Mansell Street. Chris has been a stockbroker for the last 20 of his 46 years. I have heard him speak at investment conferences and I know his experience is well worth tapping into. Here is a transcript of our conversation:

Me: Have you got a personal philosophy for investing?

Chris: I prefer to call it a personal finance philosophy and it has been evolved over years of meeting people who have cash they want to make work for them. I have lectured on umpteen retirement courses where the delegates are either close to retirement or being made redundant. They will have a lump sum either because they have decided to commute part of their pension, there is a redundancy payment, they will have accumulated it by saving from their pay packets or have received an inheritance. Whatever the reason they must make the most of what they've got. I tell them that all their investment decisions must be guided by just four criteria: security, flexibility, tax efficiency and peace of mind.

Security should come first. You should build a financial pyramid and at the base must be your house. Preferably you will own it outright but if not the mortgage repayments must be insignificant. Then, in ascending order up the pyramid, comes cash or money on deposit, particularly to be used as a cash reserve, followed by fixed return investments to supplement your income. Next should be quality equity holdings and finally those last few bricks on the top can be more speculative share investments. That way, if the top gets damaged it won't affect the structure of the whole edifice.

Flexibility is important No matter how carefully you plan, the unexpected always turns up. Tax legislation or the investment climate could change. If suddenly you need money it must be readily available, not completely tied up in long-term securities so that you can't access it at all or only on payment of a penalty.

All your investments should be tax efficient, both as far as income and capital gains are concerned. There are all sorts of tax breaks and allowances available. The temptation is to try to handle them all yourself but I recommend people should take professional advice. In the end they will probably save much more than it costs in fees.

My final criterion, particularly for equity investing, is peace of mind. We all have a risk threshold. If you have any doubt about an investment and you are going to worry about its progress then the advice is simple: don't buy. The most refreshing thing in life is sleep, so don't lose any.

Me: Wise words. But how do we put it into practice? Where do we start? Who is going to give us this advice and is it expensive?

Chris: You should go to at least two different types of organisation for an opinion on how to sort out your financial future. Don't approach more than three because you will get confused. I would suggest a bank, an independent financial adviser and a stockbroker. Talk to each of them, explain your position, and get them to come up with a proposal in writing which is tailored to your needs.

These sort of preliminary chats should be free. Don't forget, these people want your business because when you do decide where you are going to put your money they will earn fees or commissions. Just as important as the proposal is the person. They are going to be your guide and adviser and you must feel relaxed about that.

Me: Do we just talk on the telephone or do we go to them or do they come to see us? And why a stockbroker - surely they only buy and sell equities?

Chris: You want to meet the people who are going to be involved in your financial future. Talk to them, look into the whites of their eyes, decide whether you are comfortable with them and can trust them.

In the case of the financial adviser (IFA), I would certainly visit him or her at their premises. You can see what sort of person you are dealing with. If you feel comfortable with a bohemian IFA then by all means go for it, but I prefer professionals.

Don't be put off by the age of the person you are asking to guide you through the financial jungle. They will all have been well trained and, particularly if they represent a large organisation, will have the backing of a professional team.

As far as brokers are concerned, most do much more than trade in equities. They have financial services arms and are perfectly well qualified to advise.

Chris then turned from the general to the specific and gave his opinion on equity investment. Don't worry, in next week's Diary I will pass on everything he said.

terry.bond@hemscott.net