Why you know more about your fridge than your pension — and the five-minute fix

Five minutes a week that makes you smarter and calmer about your own money — plus a look at what I’m actually doing with mine…

Think about the last time you bought a fridge.

You read the Which? review. You read the Amazon reviews, all 2,000 of them, or at least the one-star ones, which is where you see the truth. You watched a man on YouTube open and close the door for eleven minutes. You compared three models in your head, then discussed it with your other half over two evenings.

Then you bought it. Six hundred quid, and three hours of research… for a box that keeps milk cold.

Now your pension:

Where is it invested? What does it charge? If you don’t know, you’re normal. More than half of us don’t know how our pension is invested. One in four don’t know it’s invested in anything at all, and think of it as a savings account with a long wait.

The money ideas people do pick up tend to come from a 25-year-old on Instagram who started investing three years ago and calls that experience.

So the fridge got full research on Which? and the pension got an influencer on Instagram. You aren’t reckless. You just gave a weekend’s thought to a fridge purchase. The difference is that the fridge has a label with the price on, and the pension doesn’t.

The fridge cost £600, once, and you saw the price before you paid it. The pension costs you a percentage a year, forever, and the price is in a document you have never opened.

Put £200 a month into a pension for forty years, let it grow at 7% a year, and you end up with about £525,000. Let someone take 1% a year off the top, so it grows at 6% instead, and you end up with about £398,000.

The fee cost you £127,000, a quarter of your pot, and nobody told you. That’s about 200 fridges.

We research the price we can see, not the price we pay.

So give your pension the fridge treatment. It takes five minutes, not three hours. Log in to your pension and find the name of the fund your money is in. Put that name into Google with the word “factsheet”.

You’re looking for two things: the ongoing charge, and the top ten holdings. If the charge is under half a per cent and the top ten are companies you’ve heard of, you’re fine. Close the laptop and go and read fridge reviews.

If the charge is more than 1%, or the top ten holdings are all other funds run by the same company, that’s your one-star review. If it was a fridge, you wouldn’t buy it.

The S&P 500 closed at a record 7,819 on Tuesday. The FTSE 100 closed at 10,542, still down nearly 3% over the past month. America is at a new high because a handful of technology shares keep rising. Britain has spent the month worrying about what its government pays to borrow.

What happened

America added just 29,000 jobs in September, far fewer than expected, and the odds of the Federal Reserve raising rates again this month dropped from over 50% to about one in five.

The Iran war ground on. Houthi missiles hit Riyadh airport and a Saudi refinery, Saudi Arabia hit back across Yemen, and three tankers were struck near the Strait of Hormuz over the weekend. Iran’s president called talks with America “meaningless”. Brent crude sits just under $100 a barrel.

And the S&P 500 closed at a record on Tuesday anyway, with the Nasdaq a day ahead of it, led by Nvidia, Tesla and Microsoft.

What I think it means

Last week I wrote that the index was near a record while most of the shares in it were falling. This week makes the point for me. The S&P 500 hit a record in the same week the British government’s thirty-year borrowing cost went past 6%, its highest since 1998.

Those two things pull in opposite directions. If lending the government money for thirty years pays 6% a year, shares have to beat that to be worth the risk, and a market at a record is priced as if they comfortably will. Yet the economy underneath is slowing: America added 29,000 jobs last month, oil is near $100, and most of the shares in the index are going down.

So either borrowing costs come back down and the record high is justified, or they don’t and the market falls. I don’t know which, and nobody else does either.

For your shares: nothing in this week changes the plan. We don’t try to time the market. The S&P 500 is at a record high, but that’s not a reason to stop buying it, or adding to your position if that’s what you do — I wrote about why in a previous issue.

What’s coming up

US inflation data comes out on 14 October: August was 3.4%, and if September comes in hotter the Fed’s second rate rise is back on and Tuesday’s record high won’t last.

I sold one of my ETFs this week, the one that had done best.

BTEK is the iShares Nasdaq US Biotech fund. I bought it in April last year at £4.68 because biotech looked cheap next to the S&P 500, and because it has a habit of swinging between lagging the index for long stretches and then running well ahead of it. I was betting on the running-ahead part. It delivered in spades: I sold on Monday at £7.66, up 64% in seventeen months.

So I’ve harvested the gain. The money has gone back into VUAG, my S&P 500 tracker, which is where everything sits until I find the next thing that looks cheap and ready to run. That is the whole method for these sector bets: buy when the sector is out of favour, hold while it catches up, take the gain when it has, and go back to the default.

The closed position is now on the portfolio page, so the track record shows the exits as well as the entries. Members get the full list of what I hold, what I paid and what it’s worth now.

Book of the Week: Die With Zero, by Bill Perkins. The opposite of most money books. Perkins’ argument is that the point of money is the life it buys, that most people die with far more than they meant to, and that the experiences you can only have when you’re young are worth more to you than the money will be when you’re 80.

Do the fridge check above first. Once you’ve stopped paying a fee for nothing, this is a good argument about what the money is actually for. Get it on Amazon.

If this is your first letter: the pension check at the top is the first thing to do. Know what you own, know what it costs, and if in doubt the answer is a low-cost index fund. Everything else I write is built on that. Start here.

Reply to this email and tell me what your pension charges. “I don’t know” is an answer, and I suspect it’s the most common one.

See you next week.

Tim

P.S. If you did the five-minute check and found something ugly, tell me that too. Next week’s letter might be about it.

I am not a financial adviser. Nothing here is personal financial advice. Please do your own research before making any investment decisions.