James Daley: Time to take stock of the Americans

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The Independent Online

Walk into any bookshop in the US and you'll find an enormous section on private investing – with many titles even escaping on to the bestseller shelves. The Little Book That Beats the Market, Rich Dad's Guide to Investing and Girls Just Want to Have Funds are just three of the thousands of books that have been written to try to satisfy America's seemingly insatiable appetite for stock-market investing.

Back home, however, it's a completely different story. Only around one in five adults owns shares in the UK, and of those, more than half are people who received them when their building society or insurer demutualised – and who have not traded the shares ever since.

Sure, the stock market can be volatile – and without due care and attention, you can lose money. But if you stick with a good professional fund manager (there are a good number who have been outperforming the market for many years), or simply buy an index-tracking fund, you're all but guaranteed to make far greater returns in the long run than you'll ever achieve in a deposit account – or by buying a piece of residential property.

It only struck me how far behind we are as a nation when I was talking to an American friend last week. Like me, he's in his early thirties, and has some, but not buckets, of savings to his name. Unlike me, however, he has absolutely no interest in owning his own property – at least not any time soon.

When I told him I owned a flat in south London – worth around £200,000, but mostly owned by the bank – he proceeded to launch into a passionate rant about how I could have made so much more money, and saved myself so much hassle, if I'd used the money I'd put in my flat to invest in the stock market.

There's no doubt that when it comes to the hassle and commitment factor, he's totally right – I miss being able to call my landlord every time I have a domestic emergency. And although there's room for debate, I'm starting to come round to his way of thinking when it comes to investment as well.

According to Barclays' equity-gilt study, equities have generated an average annual real return of more than 7 per cent over the last 50 years, while residential property prices, according to Nationwide's house-price index, have grown by a much more modest 2.8 per cent a year above inflation (since its index began in 1975). If returns continued in the same vein going forward, my American friend would surely be proved right. I pay almost as much in interest on my mortgage as I would do in rent. Furthermore, the capital invested in my deposit – and that I'm paying back each month – is, according to Nationwide, making me just 2.8 per cent a year above inflation – only marginally more than I'd get in a deposit account.

Like most Brits, my problem is that when it comes to property, I'm totally irrational. I love the feeling of owning my own flat. Psychologically it gives me so much more comfort than investing. But I'm now beginning to realise that as an investment, there are far better places to put your money.

What little savings I have beyond my flat, however, I am at least investing in the market – while most of my friends are still keeping their money locked up in a savings account, paying them just a couple of percentage points above inflation each year.

Hopefully, the introduction of the child trust fund – which has ensured that most young children now have a small amount of money invested in equities – will help to break down our phobia of the markets over the next few years. Alas, there are still another 13 years until the first of this new, wiser bunch reach adulthood – so it could be a couple more decades before our equity culture comes of age.


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