Have you ever had a pot of money and thought I'd like to put that aside for the future?
Let's imagine you do have, have a think about what you would do with it.
You could hide it under the pillow but perhaps burglars would find it. Even if they don't putting it somewhere that matches inflation would allow your money to keep its real value.
If you put aside £1000 in the year 2000 it would need to have grown to £2,109.46 to have the same purchasing power today. (Source).
Clearly putting it under the pillow isn't a good strategy.
So people invest through various mechanisms. Savings accounts, government bonds, stocks and shares, gold, property, even art.
Over recent years one of the most popular modes of saving has been an equity tracker fund. This is a bunch of stocks and shares, diverse enough that your investment can survive any particular company crashing and burning but unmanned. You might own small equally sized pieces of the FTSE 100 (the top 100 publicly listed British companies) and as the market goes up so does your investment.
Such funds are usually sold to the public by asset managers like Vanguard and Blackrock, who in turn have become very rich.
Returning to your investment. In this model you put, say, £10,000 in to a tracker fund, you are charged 0.45% which is £45 a year. At the end of the first year you will have £10,000 increased by the percentage the market went up minus the fee. If it goes up 10% that year you will have £11,000 - the fee of £49.50 so £10,950.50.
Imagine though that in that year there was 4% inflation so your money is actually worth a bit less in terms of what it can buy.
Let's adjust for inflation to get the real value, ie the value adjusted for how much it will now cost to buy stuff. It comes to £10,529.33. So with the fee and inflation your money has still increased by £529.33. Not bad!
Your neighbour keeps her £10,000 under her pillow. Adjusted for inflation it's now worth £9,615.38.
(**Please note I am not a financial adviser and anyone actually investing their own money needs to do their own research or get professional advice).
So to sum up, an equity tracker fund offers:
- very low fees.
- good return on interest
- good security (it's hard for your money to disappear because some company failed).
- undemanding on you, the customer.
If I've persuaded you then that equity tracker funds are a product that should be available to Scottish customers I'd now like to try to persuade you that the Scottish Government should offer a nationalised alternative to the current commercial offerings.
1) It's money for old rope. Once set up as customers come in the service buys their options in response to their instructions and forgets about it. The system handles it once set up, it's simply electronic transactions of the kind many people do on their phones using apps. The 0.45% fees do add up as they are taxed on what is often the majority of someone's wealth. It's 0.45% of a very large total sum. I'd rather be paying my fee to my country, not to some American mega company.
2) There are considerable controversies around these companies. They also do substantial political lobbying in their own interest. Want to see the rich taxed? Well maybe stop sending our money to these guys to lobby for the exact opposite.
3) We can pick the companies. I'm thinking that the base product should be the Top 100 Scottish companies but that there could be ethical variants too like a No Oil No Guns Top 100.
4) It's safer. 40 years ago Blackrock didn't exist. Will they still exist in 40 years' time? I'm pretty sure Scotland will still exist.
5) Our data, instead of disappearing into the bowels of corporate America to be monetised then weaponised against us would be given to our own government.
6) It suits honest taxpayers. This could mean that it helps separate out people who don't mind their government knowing about their assets from the many who try to hide their wealth to avoid or evade taxes.
7) It's trivial to do. This wouldn't be a big change, simply some IT set up and an advertising campaign. Once up it's just a website where customers can give instructions.
8) It paves the way for better financial management for Scottish people. For example a friend of mine keeps his money in the bank at zero interest. He doesn't really understand that each year little gremlins sneak in and eat about 4% of his savings. If we normalise a National ETF Savings Fund then he still won't understand how his money works but he will be getting gradually richer not gradually poorer.
9) It could support community wealth being. I'd like to see a Dumfries 100 tracker, a Dumfries and Galloway top 100 tracker and a Scotland top 100 tracker. As my town, my region and my country prospers so do I and I'm encouraged to help them do so.
10) Citizens would get shareholder voting power by means of our wealth. At the moment it's taken from us by the asset managers who may vote on companies' policies on the basis of our money without even telling us.
11) It opens the door to progressive programmes like giving school leavers £100, giving care and prison leavers a sum, giving new parents a sum for the baby. Sure, the £100 could be taken out immediately and it would by some recipients but those who leave it or add to it would see the money grow.
