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The Latest news from the Motley Fool: Let's teach our kids what money means

The Motley Fool started as an irreverent investment newsletter and has grown to become one of the most popular personal finance and investment websites. Anyone who follows its philosophy is called a 'Foolish investor'.

ere's a question: how many people in the United Kingdom actually own shares, do you think?

According to Proshare, a very Foolish organisation devoted to promoting public investment in shares (and a great champion of share clubs too, by the way), only about 27 per cent of the population do.

And that is after many years of privatisations and demutualisations. So the number of people who have actually bought shares the conventional way, using private stockbrokers, is quite a bit lower than that.

Over in the United States, about 40 per cent of the population owns shares, and that is without government sell-offs and freebies from building societies, too.

So why is there such a big difference if, as followers of the Motley Fool already know, shares have outperformed all other investments for the best part of this century?

Most of the answer lies in lack of education. To coincide with their Share Aware campaign, The London Stock Exchange recently commissioned ace opinion pollsters Mori to ask people what they thought about shares.

The frightening result, which was published last week, is that 64 per cent of people are not convinced that shares really do provide a better long-term investment than the good old savings accounts.

But what are the facts? What are the actual numbers? At the Motley Fool, we like to refer doubters to Barclays Capital Equity-Gilt Study, which reveals that, since 1919, shares have appreciated in value at an average rate of 12.2 per cent per year. And that period includes the Great Crash of 1929 too, don't forget.

Over the same period, cash held in savings accounts has averaged a mere 5.4 per cent. And Proshare's own research also shows that between 1988 and 1997, shares provided an average return of 15.7 per cent per year.

It isn't just knowledge of the actual long-term returns that is lacking, though.

Many people believe that, even if such returns are true, investing in shares is too risky because share prices often fall.

And let's face it, most of us have heard a horror story or two about great crashes and lost fortunes, haven't we?

It is this fear that turns most people away from shares, but what is not immediately obvious is that time has a great effect on risk.

The longer we hold on to our shares, the more the short-term ups and downs even out and the lower the overall risk.

Indeed, over the decades that most of us will be working and saving hard for our retirement, the most risky place to be is outside the stock market altogether. And if we don't trust our own stock-picking skills, we can always buy an index-tracking fund and match the returns of the whole market, less the annual charges of course.

The real shame is that people are generally just not aware of these facts - and for this our educational system must bear a lot of the responsibility.

How many readers out there were actually taught anything about money or investing at school? Very few, we'll wager. Our children are taught all sorts of "practical" skills, from baking cakes to making wooden pipe racks, but nothing about the most important practical skill of all - that of managing our finances.

The financial services industry has to take considerable responsibility for the general level of ignorance too, of course.

But in their case, it wasn't just through apathy. Oh, no, it was carefully planned self-interest. The industry has successfully been mystifying and obfuscating the simple facts for decades.

"Ooh, very risky madam, best leave investment to our experts." "You won't make any money without our professional inside contacts, sir, oh no, it's far too risky." How many times have you heard something of that nature said?

It isn't all bad, though, as there was also some positive news from the Mori survey. Of the people who do invest in shares, most appear to be holding them for the long term, which is a strategy very close to our Foolish hearts.

Six out of 10 shareholders had not sold any of their shares over the previous year, and the average holding period for shares turned out to be somewhere between six and seven years. Buy them, keep them. That's what we like.

Anyway, if you have heard us say all this before, then we make no apologies. In fact, if you keep listening, you are sure to hear us say it again.

You see, we are going to keep saying it until every ear has heard it; until every child in every school in every county of this land of ours has fair access to decent financial education.

Until then, we will just have to teach our children ourselves.

Teach them well, you wise Fools out there.

n Motley Fool, www.fool.co.uk


Back in early 1996, I bought some shares in Lloyds TSB at 334p. Since then, they have hit as high as 1,075p, before dropping back a bit in recent months. The best part about them is the extra shares I've got in lieu of dividends, which adds to the overall appreciation of my investment.

JB, Queens Park

The Fool responds: Congratulations. You are a Foolish investor. Buying and holding shares in great companies is usually a very good recipe for success.

Lloyds TSB is acknowledged as one of the leading banking companies in the country, so you did well to choose them in the first place.

Sitting back and watching the dividends roll in is all part of the fun.

n Send us your smartest or dumbest investment story. If we publish it, you'll get a free copy of the 'Motley Fool UK Investment Guide'. E-mail to UKColumn @fool.com or snail mail to Motley Fool, 79 Baker Street, London W1M 1AJ.


What is a beta?

DS, Clapham

The Fool responds: Beta is a measure of a share's volatility. A beta of 1.0 indicates a share that rises and falls in sync with the overall market. A beta greater than 1.0 suggests wider swings, while one under 1.0 suggests a sleepier share. Since the Motley Fool advocates holding shares for the long term, we see short-term volatility as largely irrelevant to a company's overall prospects.

n If we publish your question, you'll win a Fool baseball cap. E- mail UKColumn@fool.com or post to Motley Fool, 79 Baker Street, London W1M 1AJ.


The first five correct answers out of the hat win a super de luxe black Fool baseball cap.

Is this the world's favourite firm? This well known company recently saw its profits fall 61 per cent. It hopes a certain type of bed will help revive its fortunes.

n Answers to: UKColumn@ fool.com or snail mail to The Motley Fool UK, IoS Competition, 79 Baker Street, London W1M 1AJ.

n Last week's answer: J Sainsbury.