Alan Steel: Beware damage caused by Aigs outbreak

It wouldn’t take much to derail world stock markets if you believe one report this week which claimed that 18 bird flu deaths in China, in a population of 1.35 billion, would do it.

If you think this obsession with viruses is something new, think again. But this time it falls well short of the hysteria 30 to 40 years ago surrounding Aids. Life insurance costs trebled when the Aids scare unfolded because of the false assumptions that were made around mortality rates, causing widespread damage to share prices.

By the mid-1980s schoolchildren were lectured on the dire consequences of any contact with unknown inanimate objects, never mind certain death by kissing anybody. The world, we were told, was a dangerous place and millions would perish. It was said to be the biggest threat ever to mankind. But a few experts were more cautious. Twenty-eight years ago a Hungarian born US-based professor of philosophy (whose name escapes me) claimed that Aids wasn’t anywhere near the biggest threat to mankind.

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Instead, he suggested, the real problem was Aigs – Apathy, Ignorance, Greed and Stupidity. And when you think about all the financial disasters affecting investors and savers over the years, you have to admit he was spot-on.

Look at the financial damage to families that has resulted from Aigs. Let’s start with apathy, if I can be bothered. There can be no argument that we in the West have enjoyed a better standard of living than any previous generation and with better opportunities to save for retirement.

Yet the numbers show that the average retirement savings pot will be lucky to buy income of between £20 and £40 a week on top of a miserable state pension. Most folks have had plenty of time and opportunity to stick something to one side to grow, but they never bothered. Thousands blame poor pension plans without understanding the real culprits. And look at how many still don’t bother drawing up a will. The results are retirement incomes barely above poverty levels and untold suffering for those left behind after a death.

Apathy alone would be bad enough if it wasn’t assisted by ignorance. Together they devastate wealth building and protection. Stir in greed – especially that of the financial services industry and its internal bonus culture – and you have a powerful antidote to your chances of surviving apathy and ignorance.

There are too many examples given the space here. But take structured products as an example, sold willy-nilly to millions of unsuspecting savers. A better way of describing them would be to call them “genetically modified investment deposits”. Risks are loaded on to the buyer, the manufacturers and sales people skim the rewards. Describe structured products in that way and how many would be so willing to take them out?

Look also at how many investors are up to their armpits in investment bonds, including those who haven’t used their individual savings account (Isa) allowances. That’s apathy, ignorance and greed at their collective best – or worst in this case. Isas are simple and basically tax-free, so why do so many people use investment bonds instead? Well, that’s what happens when you pay up to three times more commission to greedy salespeople.

So where do regulators and governments fit in? Clearly they’re not apathetic or greedy, but given the evidence they easily qualify under ignorance, with added honours in stupidity.

Talking of which, did you hear about the Texas-based medical specialists who sold out their investment portfolio at the bottom of the markets in early 2009? They stayed in cash since, earning nothing, but now that the US market is up over 100 per cent they have appointed a financial adviser to reinvest their money because they say it’s much safer.

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I say that it’s not a financial adviser they need; it’s a psychiatrist.

So what do we all need to happen? I’d like to see everybody – government, regulators, media, the financial services industry and savers and investors – embrace a new world of SAIF – Success from Ambition, Integrity and Fairness. I like the sound of that.

l Alan Steel is chairman of Alan Steel Asset Management