Another matter of trust

I’ve never been a gambler; the reason being that I’m not prepared to risk losing my stake. Along with a free lunch there’s no such thing as a dead cert.

Gambling takes many forms – from a £5 punt on ‘Cat Meat Boy’ in the 3.30 at Kempston to your life savings buying shares in MFI. All carry an element of risk – it’s the price you pay for the possible high gains you could make.

So, it doesn’t take much working out to guess my reaction to this.

In 2002 the government announced that it wanted all children born in the future to benefit from investments and gave parents £250 to start this process off.

Now, due to the economic downturn people who invested in shares, and funds linked to them, have discovered that they’ve lost up to a third of their money.

Here’s a typical example:

Emma Clark followed the government’s advice for her child and said as a result, her fund had lost in the region of £200.

She told the BBC: “We chose a stakeholder account on the basis of government literature.

“It was the middle road of three routes and we liked it because it was fixed management charges of 1.5%, and it also allowed investment in shares.

“And the government had said in their literature that over the last 40 years every 18-year cycle of shares investment had done better than savings, ordinary savings accounts.

“Well, over the past year in total we’ve paid £825 into the account. And I rang up for a valuation and we were given a figure of £613.”

To me, this demonstrates a basic lack of understanding of the whole process of gambling and it all hinges on the concept of risk. You have to be prepared to lose money if you want the chance of high returns.

And that’s not just my opinion:

Roddy Kohn, from investment advisers Kohn Cougar, said investing in shares carried a large amount of risk and that people should not invest on the stock market if they were not prepared for that risk.

He told the BBC: “Basically, consumers have been taken to the cleaners by the investment community.

“The biggest problem with Child Trust Funds now is that it’s quite evident that many people have invested their money in the stock market without understanding risk.

“Consequently when they’re seeing these losses they’re upset by it.

“The truth of the matter is if you haven’t got the stomach for risk, if you don’t understand what risk is, then don’t invest this money in a stock market-invested Child Trust Fund.”

Mr Kohn is right, apart from when he says that consumers have been ‘taken to the cleaners’.  I don’t doubt for a nano-second that every one of those people who have lost money were told either verbally or in writing that there was an element of risk involved and that they decided that that risk was worth it.

In other words, the larger percentage return that they might make was more attractive than the 2% or so they might have made from putting the money into some sort of savings account.

In short, it was a gamble motivated by greed – pure (?) and simple.

It was a decision no different from that made by someone putting their shirt on the favourite in a horse race.

Therefore we should afford these Child Trust investors as little sympathy as we would towards someone who blew the housekeeping on a nag in a race.

That also goes for anyone else who was lured into bad investments of any kind with promises of high returns.

Nobody twisted your bloody arm…

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