How to manage risk

Tom Stevenson
Tom Stevenson
Fidelity Personal Investing8 March 2018

It’s International Women’s Day and my colleague Maike Currie was on the BBC this morning with a rallying cry for women to take back control of their finances. ‘Investing is not just for blokes’ was her message.

Quite right too. I’m always amazed when speaking at investment conferences, how few women there are in the audience. The belief that investing is an exclusively male activity has become entrenched.

This is no better demonstrated than by the Government’s own figures on the take-up of ISAs. There are more women putting money into cash ISAs than there are men but more men than women investing into stock and shares ISAs.

It may be an over-simplification to say this, but women do look to be better savers than investors.

This is a shame because there have been plenty of studies over the years which show that when women do invest they are temperamentally better suited to it than men for a number of reasons. They suffer less from over-confidence, for example, one of the enemies of good investment outcomes.

Anyone who has had the pleasure, if that is the right word, of being driven by their teenage children will know that the male and the female of the species have a different appetite for risk. This clearly spills over into their attitude to investments too.

Given today’s focus on gender, it’s right to note the differences. But I think there are also plenty of shared characteristics when it comes to money and risk. Both men AND women need to think about their appetite for taking risk and all of us should probably take more measured risk than our mental hard-wiring prepares us for.

Behavioural psychology tells us that the survival instincts we honed on the savannah are very deep-seated. We have evolved to run away from danger for the good reason that those of us who didn’t recognise looming risks ended up as someone’s lunch.

Unfortunately, as investors, we need to adopt a more nuanced approach to risk. Generally speaking we need to walk towards risk, albeit with our eyes open.

This has been particularly so since the financial crisis because the price that savers and investors have paid for security has been pitiful returns. The income from any investment that has offered a guaranteed or very safe return (such as cash or government bonds) has been dismal.

Even in a low-inflation environment, this has generally required us to accept a negative real return. Cash and government bond investors have become progressively poorer in inflation-adjusted terms.

By contrast, those who have accepted the short-term volatility of stock market returns have been able to benefit from the tendency for shares to outperform other ‘safer’ asset classes.

Over longer periods, the differences are staggering. The latest Credit Suisse Investment Returns Yearbook, for example, shows that in the US (for which long term data is readily available), cash has returned 0.8% a year since 1900, bonds 2% and equities 6.5% in real terms, with income reinvested.

That might not sound a huge difference but thanks to the power of compounding it is the difference between turning $1 into $3 in cash, $10 in bonds and $1,654 in equities. Past performance is not a reliable indicator of future returns.

Even over shorter time periods, our own research shows how embracing the risk of the stock market has, literally, paid dividends for investors.

We found that £15,000 saved in a savings account ten years ago would be worth £15,478 today, a cumulative return of just 3.2%. The same amount invested in the FTSE All Share index at the same time would today be worth £29,713.1

We also looked at the returns that could have been achieved in a range of UK funds on our best buy list of preferred funds. To avoid any accusation of ‘cherry picking’ we looked at the four funds which use the FTSE All Share index as their benchmark and which have a ten year track record. All four of them significantly outperformed both cash and the FTSE All Share index.

The total returns on the initial £15,000 investment were £57,830 for the Lindsell Train UK Equity Fund and more than £35,000 for Liontrust UK Growth, Majedie UK Equity and Fidelity Special Situations.2

Needless to say, these kinds of returns are for illustration only and they obviously might not be repeated in the future. Indeed, given the starting point of the market nine years into the current bull market, I’d say it is very likely they won’t be repeated.

My point is simply that investors who have accepted the risk of the stock market have, in the past, been well rewarded compared with those who sought the shelter of cash.

This International Women’s Day, we should all of us, women and men, question whether our attitude to risk is helping or hindering our financial aspirations.

Learn more about the Select 50 list of preferred funds.

Five year performance


As at 7 March






Lindsell Train UK Equity






Liontrust UK Growth






Majedie UK Equity






Fidelity Special Situations






FTSE All-Share






Past performance is not a reliable indicator of future returns

Source: Thomson Reuters Datastream, 8.3.13 to 8.3.18. Basis: bid-bid with income reinvested

Source: Fidelity International, February 2018. Total return of £15,000 in the Morningstar UK Savings 2500 and FTSE All Share from 31.01.08 - 31.01.18

2 Source: Fidelity International, February 2018. Total return of £15,000 in Fidelity Special Situations, Majedie UK Equity, Liontrust UK Growth and Lindsell Train UK Equity from 31.01.08 - 31.01.18

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Important Information

The value of investments and the income from them can go down as well as up, so you may not get back what you invest. Tax treatment depends on individual circumstances, and all tax rules may change in the future. Select 50 is not a personal recommendation to buy funds. Reference to specific funds should not be construed as a recommendation to buy or sell these funds and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.