The Temptation to Sign Up to Endless New Investment Products
22 Oct, 2023
I’m not sure what’s going on at the moment, but I’m getting a higher-than-usual amount of emails that are along these lines:
Hey Ruth,
How are you?
I've just been looking at the **INSERT INVESTMENT COMPANY NAME HERE** range of newly released funds. They have an annual fee of X%, which is pretty low! I’m thinking of switching and currently researching options and would love to know if you have any thoughts about those funds.
Thanks, and have a fab day!
Often, people will say they are looking at funds that buy a particular sector, such as technology, crypto or property. Or ones that are hedged or unhedged. Onshore or offshore. Inside KiwiSaver, or outside of it. There are endless iterations of how you can invest your hard-earned pūtea. They will often explain what they already invest in, so it’s usually not too hard for me to see that the new funds they are asking me about are about to have them veer off in quite a different investment direction or switch to something more or less the same. Once again, the options are endless. But the point I am about to attempt to make is not WHAT they are looking at; it is that they are looking to jump on any new opportunities offered.
I can see the problem because I used to be the same.
Put it this way. As soon as you sign up for a company, you are on their radar to be marketed with new products and services. The investment industry is no different from any other in that regard. They will create a product for it as soon as they perceive a new need. The creation of ESG funds is an excellent example of this. Their intentions are not a malicious sales pitch; it’s just business. They each have many customers asking for different things and can sense a wide range of ways to make an income from them.
Emails such as the one above used to send me on an investigative hunt of the fund mentioned. I was as intrigued as they were. WHAT IF this was the next best investment opportunity, and surely it pays always to be well informed? I would answer back with my thoughts (I’m not a financial advisor, so I won’t give advice), and I’d send links and resources so they could continue their own research. I enjoyed it.
But then I became a bit jaded when it became clear that companies are ALWAYS releasing new funds, products, and opportunities. Brand-new companies often pop up, too. It’s endless and can become quite overwhelming if you let it. If I jumped to attention every time a new opportunity popped up, or an existing company released a unique investment opportunity, I’d be rebalancing my portfolio weekly. For example, have you looked at Sharesies lately? They started with a few ETF funds and now offer an overwhelming choice of products.
Therefore, these days, instead of switching to research mode, I’ll send back a response along these lines.
Kia ora,Lovely to hear from you. Thanks so much for taking the time to get in touch.
Interestingly, I’ll often receive emails like yours asking for my opinion on new products that companies offer to investors.My thoughts (and opinionated opinions) are along these lines: there will always be new offerings to entice us to their platform. It doesn’t mean we have to take the bait and buy them.
When I first started to manage and invest our money, I came across good information that got me started down the path of index fund investing (aka buying the whole market). That caused me to choose a provider and one of their products and make a start. Shortly after that, because I had signed up for a few mailing lists, I was offered new investment products from various companies. The thought was instantly in my mind that these were potentially “better” products, which sent me down the rabbit hole of comparing the new choice (which always sounded kind of fabulous) with the old choice. At that stage, I was still under the impression that there was a perfect investment strategy, so surely it would serve me well to try to find it!
I tied myself up in knots, second-guessing my original decision. What if I’d made a dud choice? Now that I’ve been investing for years, I realise that an investment provider's job is to constantly keep their investors interested and offer products and services that will keep their customers on their platform and entice new ones in.
So, regarding your specific question, I’ve not looked at what the company you are asking about has just added to their offerings. Because if you give it a month, they will probably add something else. If I woke up in your shoes and knew what I believe to be true about “just buying the whole share market” as prescribed by those in the FIRE community, such as author J L Collins, their new products would unlikely sway me from my path.
However, I didn’t just wake up this opinionated. It did take me a while to learn this lesson and to stop veering in all sorts of directions with my investing dollars. Experience is a good teacher.
From time to time, like you, I have taken the well-marketed bait from an investment company and wavered, which in my case saw me buying into single sector funds - even though everything I had previously read told me it probably wouldn’t work out. But, I had to wonder; perhaps it would be different this time. It wasn’t. In one instance, I took a risk with $1,000, invested it in a single-sector tech-type fund and sat back and watched how it performed. The answer? Horrendously. I held it for a year and sold it when it dropped to $500. Last time I checked in, our money would be down to $250 if we stayed in. What a disaster!
What investment providers don’t tend to email you about is the funds that have performed so poorly that they quietly close them and remove them from their websites. We only hear about the new big thing, not the former new big thing that actually didn’t work at all.
I put the $500 we lost down to a wonderful investment in our financial education, and it was a slap on the wrist not to do it twice. So, by all means, don’t just take my word for it. Try the new fund you have mentioned if you want to. It’s a gamble that your hunch is correct and that the value of the investment will go up. For reference, I gambled and lost.
If you were perfectly content with your investment structure before receiving information about the new investment, stick to your knitting, is what I’d say. If you are tracking and monitoring your current investments and they are working for you, stay the course, continue investing, and resist the temptation to change. If you insist on dabbling elsewhere, as I once did, do it with a tiny amount of money and keep an eye on it. In a year, decide your view on it.
Investing done well is dull and unexciting and doesn’t concern itself with short-term returns and fancy new investing genres. Sure, perhaps someone is making some money out of them, but it’s probably not going to be you or me.
Does that help?
Ngā mihi nui,
Ruth
Email exchanges can go on for days, weeks, months or even years, so I’m always pleased to receive a reply. I recently received a response from a woman who had previously been asking me about a new shiny product being offered, and I sent her a similar response to the one above.
Her reply email simply said:
You're so right - it's so easy to be enticed by all the new investment schemes offered (which, of course, providers need to do to keep us interested). I can see why wanting to dabble elsewhere is human nature if something looks new and exciting.
Thanks for pulling me back - I know I'm best to stick to my fund and buy the WHOLE stock market - not just one sector.
Have a great week ahead 🙂
Thanks.
You are very welcome. I’m happy to be the voice of reason for my audience.
