Sunday 29 July 2018

Stocks & Shares: What's The Best Way To Invest For Your Future?

Debate has raged on amongst academics, professional investors, and the general public as to the most profitable method of wealth creation. Karl Ahlstedt, Founder of The Horizon Institute and Guest Lecturer at the University of Wales, explores the various options.

From bonds and real estate, to stocks and exotics, the options are both numerous and daunting for the uninitiated investor looking to profit in the long term.

Timeframes matter; there is no specific optimal type of asset for every time horizon, with the significant departure occurring between short-term (typically less than 5 years) and long-term (typically more than 5 years) investment.

Investors that need to access their investment capital in under 5 years tend to be locked into investments that are low risk and highly secure – at the cost of abysmal returns. In the UK today (July 2018), the typical return on cash savings accounts across the high-street remain at near record lows of 0.3% per year. With inflation likely to be above 2% according to the ONS, the purchasing power (or more simply, the worth) of the invested capital falls by as much as 1.7% per year- essentially a 1.7% annual loss, hardly an inspiring incentive for those looking to secure a stable financial future.

Prior to the 2008/09 financial crisis, the savings rate of easy access bank savings was as much as 5%, and consequently interest rates fell- making borrowing cheaper, and saving less rewarding. This led to investors taking greater risks to fight off inflation and protect capital growth. This is where the financial markets entered the scene for even the most ordinary of people.

The stock market since inception has returned an average of 7% per year in capital growth, and even the worlds worst investor would, on average, only have to wait 13 years to recover any losses, based on investing lump sums prior to each financial crisis.

There’s more to consider. Actively managed funds, such as those from hedge-funds, bring with them substantial management fees. This is often a 1-5% management fee, and a 20% performance fee. Given returns of 7% averaged out, the real returns to investors would generally be between 2% and 5% per year. Generally enough to stave off the effects of inflation, but again it is hardly inspiring for those planning long term financial security.

Yet, the world is changing – the cost of transaction fees continues to decrease, and we are seeing the first zero-fee brokerages opening across North America (Robinhood) and Europe (Freetrade). While this allows individuals to trade at minimal costs, the financial markets are hardly a place for the inexperienced. The majority of uninformed investors would be advised to avoid building a “positive selection portfolio”, to use the jargon of the industry

This is where an individual investor identifies, analyses and executes trades to build a portfolio of stocks. The investor is responsible for exposure, risk, financial analysis, and technical analysis to execute trades at the right time. Traditionally, professionals who perform these duties have a quantitative background with degrees in mathematics, physics, economics and finance.

These professionals construct and use complex financial models, back-testing and analysis which is often beyond the scope of individual investors. This is part of the problem: many of the worlds brightest minds are involved in buying and selling equity securities, and competing with that expertise and resources it often a futile approach.

Instead, for most ordinary investors a more passive approach is often best. Index funds track the list of companies that make up the index, e.g. the FTSE100 contains the top 100 British companies by market capitalisation (how much the company is worth).

Therefore, investing in a FTSE100 mutual fund provides exposure to the index as a whole. Remember the 7% annual returns we mentioned earlier? This is where that number came from, it is the average amount per year the collection of stocks (the index) has increased since inception across the developed world. There are a few caveats here, but generally it holds up well enough to be considered an accurate assessment.

To conclude, a word of caution – since the last financial crisis (and the drop in central bank lending rates), stock markets have become one of the only bastions left for investors seeking 5%+ returns. This has led to substantial demand for stocks and shares which has pushed many financial markets across the globe to record highs. Very simply, higher demand = higher prices.

I would specifically point out that the S&P now has a CAPE (cyclically adjusted price earnings) ratio similar to that of the great depression, and while its unlikely another great depression is around the corner, the S&P is almost universally accepted as being expensive now when compared to historic levels.

Decided the passive approach isn’t for you? Want to learn how to build a stock portfolio the same way as they do on Wall Street? Learn more about active investing at The Horizon Institutes blog.

The author is in no way affiliated with the brokerages mentioned above.

This article was written by Karl Ahlstedt, Guest Lecturer in Finance at the University of Wales and Founder of The Horizon Institute.
Lone Editor


  1. An excellent article. I enjoy your posts very much and find it extremely innovative. Thanks for sharingNice information, valuable and excellent design, as share good stuff with good ideas and concepts, lots of great information and inspiration, both of which I need, Very good points you wrote here..Great stuff...
    I think you've made some truly interesting points.Keep up the good work.
    Nice information, valuable and excellent design, as share good stuff with good ideas and concepts,
    lots of great information and inspiration, both of which
    I need, Very good points you wrote here..Great stuff...I think you've made some truly interesting points.Keep up the good work.
    Nice article, very helpful for me so thank you for the post. I'll be sure to read more of your work, it's great! green waste removal

  2. Everything is very open with a really clear explanation of the challenges. It was definitely informative. Your site is useful. Thank you for sharing. Feel free to visit my website daryl dixon vest

  3. Thank you for talking about stocks and shares, which you provide as the finest ways to invest in our future. Everything is really transparent, and the difficulties are explained in great detail. It was undoubtedly educational. This website is helpful. By the way, If you are a university student and need university assignment writing help, use this site for your assignment help because today I have done my assignment from him and they did my work at very low prices so that's why I suggest please use this site.

  4. This site is beneficial. By the way, I recommend using this site if you are a university student in need of assistance with assignment help service because I just finished my assignment from him today, and they completed it for a very reasonable fee. For that reason, I urge you to do the same.

  5. "Thanks to my finance advisor's guidance, I have been able to build a solid financial foundation for my family's future." Exponent Investment Management

  6. Investors who have a timeframe of under 5 years and need to access their investment capital often opt for low-risk and highly secure investments. However, these options typically come with abysmal returns. Best saving money help me write my dissertation in the future. Everyone want to bright your family and best education so upto date invest your Stockes and shares in furure.

  7. "Consider automating your investments through systematic investment plans (SIPs) to ensure regular contributions."

  8. Navigating the world of investment options can be overwhelming, but Karl Ahlstedt sheds light on the diverse avenues. From the potential of stocks to the changing landscape of zero-fee brokerages, his insights offer valuable considerations for those aiming to secure their financial future. If you want a dissertation topics business management in the UK. I am here to assist you.

  9. Corporate Law provides guidelines for conducting internal investigations of corporate misconduct.

  10. One of the primary reasons why students seeking Assignment help UK is the complexity of their assignments. Often, students face challenges in understanding complex concepts, conducting thorough research, and structuring their assignments effectively. Assignment help services have a pool of experienced professionals who specialize in various subjects and disciplines. These experts possess advanced degrees and in-depth knowledge, enabling them to provide accurate and well-researched solutions to assignment problems. By availing these services, students can gain a deeper understanding of the subject matter and improve their overall academic performance. One of the key reasons why students in London avail assignment help services is the high level of competition they face in their coursework. Universities in London have stringent academic requirements and expect students to submit top-quality assignments that showcase critical thinking, analytical skills, and thorough research. Assignment help in London cater to these requirements by providing students with access to experts who possess advanced degrees and substantial experience in their respective fields. These experts offer valuable insights, guidance, and support, enabling students to meet the high academic standards set by their institutions.

  11. Navigating the diverse investment landscape can be overwhelming, especially for newcomers. Understanding the significance of timeframes is crucial. Whether you're considering bonds, real estate, stocks, or more complex options, your investment horizon matters. For those in Riyadh exploring long-term investment strategies, digital marketing services in Riyadh can play a pivotal role. These services can help promote financial literacy and investment products, ensuring that individuals make informed choices to secure their financial future effectively.

  12. Practice positive self-talk and challenge negative thoughts. Semaglutide

  13. Emphasizes the need for cautious investment strategies in today's dynamic financial landscape. With increasing volatility and uncertainty, understanding the risks and rewards associated with different investment options becomes paramount.
    By: nursing dissertation writing service

  14. Karl Ahlstedt's insightful exploration of investment strategies offers valuable guidance for both novice and seasoned investors navigating the complexities of wealth creation in today's financial landscape. His balanced assessment of passive and active approaches provides readers with a comprehensive perspective on building a successful investment portfolio.
    I cannot express enough gratitude for the exceptional assistance I received from New Assignment Help's Engineering assignment help UK service. As a UK student specializing in engineering, I often found myself overwhelmed with complex assignments. However, with the help of their dedicated team, I was able to tackle even the most challenging tasks with ease. The Engineering Assignment Help UK experts assigned to me demonstrated profound knowledge and expertise, ensuring that every aspect of the assignment was thoroughly addressed. Their promptness in delivery and commitment to excellence truly set them apart. Thanks to their assistance, I was able to achieve academic success while gaining a deeper understanding of engineering concepts. I highly recommend New Assignment Help's Engineering Assignment Help UK service to any UK student in need of professional assignment assistance.