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The Grand National or Investing?

12 April 2018

Justin Urquhart Stewart, co-founder and head of Corporate Development, Seven Investment Management takes a view.

It’s estimated that a quarter of UK adults bet on the Grand National. Meanwhile, not too dissimilar numbers – 22% of women and 29% of men, according to Boring Money – think of investing as a form of gambling. I find it worrying that so many people equate investing to gambling. It means that they may never invest.

With the Grand National on over the weekend I wanted to explore this angle further.

In order to win anything in a horse race, you have to bet on a horse that wins or at least ‘places’ (i.e. finishes in the top four) if you’re betting each way, which apparently some 75% of those betting in the Grand National do. So first your horse has to finish – a feat in itself – and then they have to finish in the top 10% of the original line up to reward you.

7IM invests in around 40 types of investments – a number similar to the number of horses running this weekend – but it is actually possible for all those asset classes to deliver a return. And while some may not deliver a return, and even make a loss, their role in the portfolio is to do just that i.e. respond to economic and market scenarios in a different way. Investing, of course, also has a process – what we do lasts for far longer than 10 minutes and, in fact, the longer the race, the better!

Back again to the horses: your horse will have had to jump 30 huge fences to win. And while improvements have been made to many of the National’s infamous ones, by rebuilding the core from flexible plastic rather than wood, their sheer height and individual characteristics justify the fear that they invoke.

Last but not least, the Grand National has one of the longest run-ins from the final fence to the finish line of any steeplechase – 494 yards in fact. So not only does your horse have to be able to have run a race with additional weight (probably in soft going given April’s propensity to rain showers) and heaved itself and its jockey over some serious obstacles, it then has to sprint to the finish! Grief! We’re not expecting any of our investments to do all of this. Each has its own role in the portfolio and is why we’re investing across multiple markets, industries, geographies and even currencies.

So are there any similarities? Yes – there are risks with gambling and risks with investments – in both cases what’s paid out can be less, as well as more, to the extent that you can lose more than you originally paid in. However, there are also risks when you don’t invest. Those risks are collectively called goals risk i.e. where you don’t have enough money to live out an enjoyable retirement, or that you may even run out of money.

This goals risk is also increasing. You are now more responsible than ever for funding your retirement years. We’re living longer so our money will be spent over an extended period. The vast majority of the gold plated pensions of the past are closed to new members, and new schemes aren’t quite so generous and have maximum limits as to how much you can put in. On top of that, you have many more decisions that need to be made today to get to that enjoyable retirement in the future.

What I do realise though is that investing isn’t quite as exciting a way to make money as the rush of a race. But that for me is how investing should be. Dull. It’s much more a tortoise versus hare race. But there are plenty of other ways to seek some thrills and this way you’ll have the finances to do them time and time again. It also means that your money has much more of a chance of lasting beyond the ten minutes racing timeline. And while the National’s horses will be exhausted after their 10 minutes on the course – even those that have to pull up – our 40 asset classes will still be going and our investment horizon will carry on.

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