From inflation to investing mistakes: Best of the This is Money podcast from 2021

Podcast Summary

• Making investing mistakes is a natural part of the process: Learning from mistakes is crucial for long-term investing success, even if they result in paper losses. Stay informed, seek professional help, and approach investing with a long-term perspective.

  Learning from this episode of the This is Money podcast is that making investing mistakes is a natural part of the process and learning from them is crucial for long-term success. The recent GameStop saga served as a reminder of this, with many individuals experiencing paper losses after jumping into the trading frenzy in search of quick profits. While it's important to acknowledge the financial consequences of these mistakes, it's equally important to view them as opportunities for learning and growth. As Tanya Jeffries, the pension investing editor, pointed out, the focus is often on the successful investments and recommendations, but the lessons from the unsuccessful ones are just as valuable. The key is to approach investing with a long-term perspective, staying informed, and seeking professional help when needed. Mistakes are an inevitable part of the journey, but with the right mindset and approach, they can be turned into valuable learning experiences.

• Assumptions vs. Reality in Investing: Overestimating a company based on assumptions can lead to significant losses. Be wary of dividend traps and focus on a diversified portfolio to minimize risk.

  Overestimating a company based on assumptions and not paying enough attention to a company's actual actions can lead to significant losses in investing. The speaker shares his personal experience with investing in HMV shares in 2010, believing that people would always want to browse and buy physical music and books in stores. However, HMV failed to capitalize on this unique position and instead focused on selling more t-shirts and bought music venues, leading to a 60% loss for the speaker. Another lesson learned was to beware of dividend traps, as a high dividend yield may not be sustainable if a company cannot cover it with its cash flow. Lastly, having a diversified portfolio with more than one stock is crucial to minimize the risk of significant losses. The speaker also learned this the hard way when he invested a substantial amount of his savings into a smaller company's gold fund based on the assumption that gold miner shares would catch up to the soaring gold price. However, the gap between the gold price and gold miner shares did not close as expected, leading to a loss.

• Lessons from past investing mistakes: Investing based on greed or perceived winners can lead to losses. Research, diversify, and consider cutting losses to minimize risk.

  Investing in individual stocks based on greed or a perceived "surefire winner" can lead to significant losses. The speaker learned this lesson the hard way with a gold fund and investments in controversial companies like Quindell and CAM Kids. These experiences taught him to be more cautious, diversify his portfolio, and consider cutting losses when he realizes he's made a mistake. Additionally, he emphasizes the importance of doing thorough research and paying attention to professionals in the industry. While he has made mistakes in the past, he has learned from them and now focuses on investment trusts and funds managed by professionals.

• Managing Fewer Investments for Better Control: Focusing on fewer investments can help reduce unnecessary costs, maximize returns, and maintain better control. Be aware of underpaid state pensions for women pre-2008 and advocate for oneself or others to receive rightful compensation.

  While diversification is important in investing, holding too many investments can lead to unnecessary costs and potential overlooked opportunities. The speaker shares his experience of managing a large number of investments and the challenges of maintaining track of them, as well as the high cost of rebalancing. He suggests focusing on a smaller number of investments to keep better control and maximize returns. Another significant topic discussed was the underpaid state pensions for women, which was brought to light by investigative journalists. This issue affects women who married before 2008 and whose state pensions were not automatically adjusted to match their husbands'. The true scale of the problem was revealed, with an estimated £3 billion owed to affected women. The human impact of this issue was also highlighted, with stories of elderly women who had been underpaid for decades and missed out on significant sums of money. The importance of being aware of such issues and advocating for oneself or others was emphasized.

• Thousands of women underpaid state pensions due to DWP error: Thousands of women in the UK missed out on state pension payments due to a manual error. Check pension statements, contact DWP for backpay, and act quickly for increased pension.

  Thousands of women in the UK have been underpaid their state pensions for years, amounting to a collective loss of hundreds of millions of pounds. This issue was caused by a manual error in updating women's pension records, which went overlooked for a long time due to a pattern of indifference from the DWP and its staff. Women who believe they may have been affected should check their pension statements and contact the DWP to see if they are owed any backpay. The government has initiated a correction exercise, but people should act quickly to claim their missed payments and receive an increased pension going forward. It's important to note that those who reached state pension age before March 2008 and didn't apply for their entitlement are not covered in this correction exercise and must apply proactively to the DWP. The lack of interest payments on the backpay is also a concern, as people should not be penalized for the DWP's error. This situation has significantly impacted women's finances and limited their opportunities for travel and other experiences.

• Being proactive in administrative matters: Write letters to DWP for benefits to avoid long waiting times, and consider alternative learning methods and career paths based on personal strengths and interests.

  Proactivity is key when dealing with administrative matters, such as contacting the DWP for benefits. With long waiting times, it might be more efficient to write a letter and keep a copy. University education may not be the best choice for everyone, according to entrepreneur Stephen Bartlett, who believes that the world's information is readily available and that individuals can learn effectively outside of a traditional classroom setting. He also emphasizes that individuals who struggle in traditional educational environments often go on to become successful entrepreneurs. For those considering starting their own business, the fear of risk and lack of connections can be daunting. Bartlett advises seeking out resources and building a network to help overcome these challenges. Ultimately, it's important to find learning methods and career paths that suit individual strengths and interests.

• Focus on the process, not the end goal: Break down overwhelming goals into manageable tasks, focus on small steps to achieve progress, and don't let the end goal intimidate you.

  Instead of focusing on the daunting end goal, which can create psychological discomfort and lead to procrastination, it's essential to focus on the process and break down the goal into manageable tasks. As Sir David Brailsford and many other successful individuals have advised, focusing on the process can help turn overwhelming goals into achievable steps. Instead of fixating on becoming the number one podcast in the world, focus on buying a microphone, writing down the podcast concept, and finding a way to edit the podcast. These small, achievable tasks will lead you to your ultimate goal. Additionally, with the abundance of information available online, there's no excuse for not taking action and starting today. So, ask yourself, what can you do today to start the process towards your goal? Whether it's naming a business or creating an Instagram page, these small steps can lead to significant progress. Embrace the process, and the outcome will follow.

• Housing market growth and risks: Despite pandemic lifestyle changes and gov't incentives, housing market growth comes with risks of overextension. Lenders implement safeguards, but some may still overreach. Prices will eventually decrease, but future uncertain with opinions ranging from crash to flattening.

  The housing market is experiencing unprecedented growth due to changing lifestyles during the pandemic and the government's stamp duty holiday. However, this growth comes with risks, as some people may be overextending themselves to afford homes. Lenders have implemented stronger safeguards to prevent this, but it's impossible to stop everyone from overreaching. The trend of people moving to larger homes with gardens and working from home is likely to continue, but house prices will eventually have to come down. The future of the housing market is uncertain, with opinions ranging from a major crash to a temporary flattening when the stamp duty holiday ends. Overall, the housing market is experiencing significant changes driven by various factors, and it's essential to be cautious and informed when making real estate decisions.

• Impact of Economic Measures on Housing Market and Inflation: The stamp duty holiday caused a surge in house prices, but its end could cause uncertainty. Inflation reached record highs due to various factors, and while central banks believe it's transitory, the risk of prolonged inflation remains.

  The economic measures implemented in response to the pandemic, such as the stamp duty holiday, have had significant and lasting impacts on the housing market and inflation. The stamp duty holiday, introduced as an emergency measure, has led to a surge in house prices, and its potential end could cause further uncertainty. Meanwhile, inflation, driven by various factors including base effects and supply chain disruptions, has reached record highs and is a cause for concern. The Bank of England and other central banks maintain that this inflation is transitory, but the potential for it to persist and create an inflationary spiral remains a concern. Overall, the economic recovery from the pandemic continues to present challenges and uncertainties.

• Rising Inflation Erodes Purchasing Power: Individuals must reevaluate finances to protect against inflation, as savings offer little protection and cost of living increases across sectors

  Inflation is currently rising faster than expected, and this trend is expected to continue. This means that the purchasing power of savings and current accounts is eroding quickly, making it difficult for individuals to keep up with the rising cost of living. The highest savings rates can only offer a small fraction of the current inflation rate, leading to a significant loss of real spending power over time. The cost of living is increasing across various sectors, including fuel and energy bills, putting additional pressure on household finances. It's crucial for individuals to reevaluate their finances, including their investments and savings, to ensure they are inflation-proofed as best as possible. The situation is uncertain, and further spikes in inflation are possible, making it essential to stay informed and adapt to changing financial circumstances.

• Understanding the rising cost of living and its impact on our finances: Research suggests the average UK citizen might spend over £1.5m by age 81, with costs varying greatly. Inflation has risen significantly since 1971, making buying necessities challenging for younger generations. Being financially prepared for life events and uncertainties is crucial.

  The cost of living continues to rise, and the Bank of England has raised interest rates in response. While it's difficult to predict exactly how much we'll spend in a lifetime due to various uncertainties, research suggests that the average UK citizen might spend over £1.5 million by the age of 81. This figure can vary greatly depending on individual circumstances such as property prices, marriage and divorce, number of children, and lifestyle choices. The discussion also touched upon the historical context of inflation, which has significantly impacted the cost of living over the past five decades. For instance, since 1971, inflation has risen by 144.5% according to RPI. This has made buying a house and other necessities increasingly challenging for younger generations. To better understand the historical context of inflation, you can use calculators like the one available at money.co.uk, which allows you to see how the cost of things has changed over time. This research not only sheds light on the rising cost of living but also emphasizes the importance of being financially prepared for various life events and uncertainties.

• Costs of Living in the UK: Past, Present, and Future: The cost of living in the UK has significantly increased over the decades, with expenses like housing, holidays, and pets becoming more expensive. For example, the average person is expected to spend £66,000 on eating out and £59,500 on owning a cat over their lifetime.

  The cost of living in the UK has significantly increased since the 1970s, with expenses such as housing, holidays, and pets becoming more expensive. For example, the average person in 2021 is expected to spend £66,000 on eating out over their lifetime, compared to the early seventies when takeaways and holidays were less common. The cost of owning a cat for a lifetime is estimated to be £59,500, which is a surprising expense for some. Other factors, such as home ownership, education, and healthcare, also contribute to the difficulty of estimating the average lifetime cost for a Briton. Despite these challenges, it can be interesting to reflect on past and future spending habits. For instance, one could look back at past housing costs or future considerations like whether to send children to private school. Ultimately, the cost of living continues to evolve, making it an ongoing consideration for individuals and families.

• Understanding Spending Habits with Money Apps: Money saving apps and new wave banks provide visual data to help young people manage expenses, potentially leading to budgeting. Balance financial awareness with a positive outlook.

  Visual data presented through money saving apps and new wave banks is resonating with younger people, helping them understand their spending habits and potentially kickstarting a budgeting process. However, constantly focusing on expenses may not be an enjoyable experience for everyone. It's essential to strike a balance between being financially aware and maintaining a positive outlook on life. To stay updated with the latest personal finance news, visit thisismoney.co.uk or download the app. If you have any comments, questions, or topics you'd like the team to explore, email editor@thisismoney.co.uk or engage with them on Twitter @thisismoney. Don't forget to rate and subscribe to the podcast to help others find it. Wishing you a prosperous New Year!