How to Fund the Life You Want: What everyone needs to know about savings, pensions and investments

By Robin Powell and Jonathan Hollow

*WINNER OF THE WORK & LIFE BUSINESS BOOK AWARD 2023*

An accessible and practical guide to personal finance that busts myths, clarifies jargon and provides the best options for building your wealth.

More and more people are reassessing their lives as a result of the pandemic. Many have left their jobs or reduced their hours. Others have resolved to work only as long as they must, retiring early to focus on families and friends, hobbies or travel. Meanwhile, employers all over the world are experimenting with a four-day week.

Making the most of these choices requires having and growing enough money to enjoy your future life, without needing to worry about it running out. But when it comes to investing in a pension, there is a dizzying number of complex options available.

This book is designed to provide clear, objective guidance that cuts through the jargon, giving you control over your financial future. The authors strip away the marketing-speak, and through simple graphs, charts and diagrams, provide an evidence-based money manual that you can use again and again. They also alert you to myths and get-rich-quick schemes everyone should avoid.

It's a highly practical and refreshingly honest book, written by two independent experts who have seen how the investment industry works from the inside, and how it profits from complexity, ignorance and fear. They show, in practical language, how UK savers and investors can beat this system and, crucially, make more money for themselves than they do for financial services firms.

• Language: English
• Publisher: Bloomsbury Publishing
• Release date: Oct 13, 2022
• ISBN: 9781399404594

Robin Powell

Robin Powell studied at the University of Oxford, then worked as a print, radio and television journalist and founded a media production company. He now focuses exclusively on financial content and is the founding editor of The Evidence-Based Investor, a blog that works to dispel the myths surrounding investing and challenges the vested interests in the asset management industry. He has interviewed and co-authored content with some of the most distinguished practitioners and researchers in the field, including several Nobel Prize winners. He is an Ambassador for the Transparency Task Force, a campaign group that holds the financial services sector to account for the fees it charges. He is also head of client education for the financial planning firm RockWealth.

Book preview

Consumer advocates, industry leaders and academics alike praise How to Fund the Life You Want

‘If you’re serious about getting things right with your money – and avoiding costly mistakes – then set time aside to work through this excellent book. You will end up better off. No question.’

Paul Lewis, Freelance Presenter, Money Box BBC Radio 4

‘This book possibly has the most heart of any finance book ever written. It gets right to the nub of why mastering the management of our finances for ourselves is so crucial – but also so difficult. Robin and Jonathan skilfully blend excellent tips with helpful exercises, relatable anecdotes and decades of wisdom. Their understanding of behavioural psychology underpins their very human approach, and the result is that topics are accessible in a way that I would venture has never been achieved in a finance book before.’

Becky O’Connor, Head of Pensions and Savings, Interactive Investor

‘Wonderfully researched, jargon-free, thought-provoking, interactive and engages the reader from start to finish.’

Jeff Prestridge, Personal Finance Editor, Mail on Sunday

‘I’m often asked to recommend a good, essential book on investments within the UK tax and legal system. Until now, there wasn’t one. This book is now my go-to pick.’

Steve Conley, CEO, Academy of Life Planning, and former Head of Investments, HSBC

‘Anyone who wants to get started in the world of investing faces information overload. This book offers a great solution – it’s written by experienced authors that you can trust and it’s set out in a clear and highly digestible format.’

Moira O’Neill, Investing columnist, Financial Times

‘This is not just another book about investing. It is a comprehensive financial lifestyle manual relevant to people of all ages and walks of life.’

Mark Northway, Director, ShareSoc

‘I welcome this much-needed book, here to help anyone make sense of their money and pensions. With their human touch, no-nonsense language and a relentlessly practical approach, Robin and Jonathan have written the missing manual for everyday investors.’

Jackie Leiper, Managing Director, Pensions & Stockbroking at Lloyds Banking Group

‘This book is an antidote to the misleading messaging and hype that some parts of the industry have been putting out for decades, to consumers’ detriment.’

Andy Agathangelou, Founder, Transparency Task Force

‘Jonathan and Robin are refreshingly clear about a complex subject, offering a straightforward, evidence-based approach to retirement planning. Great for the everyday investor who wants to cut through the jargon and make good decisions for the future.’

Diane Maxwell, former Retirement Commissioner for New Zealand

‘There are many books about how to get rich fast. Their authors certainly get rich, readers less so. Much more useful and a lot rarer are books that help you to grow your money steadily and avoid losing your savings – this book achieves this. It is very precious!’

Ludovic Phalippou, Professor of Financial Economics, University of Oxford Saïd Business School

‘This is such a valuable guide to DIY investing, I recommend you make this book your first investment.’

Claer Barrett, Consumer Editor, Financial Times

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Contents

Foreword by Iona Bain

Introduction

1 Your Money or Your Life?

2 Invest in … Yourself

3 Manage Your Money

4 Capture Market Returns

5 Avoid Charlatans and Sharks

6 Take the Right Risks

7 Manage Your Mix

8 Face Your Feelings

9 Find a First-Rate Adviser

Our Six Rules and the Downloadable Workbook

Jargon-Buster

Endnotes

Acknowledgements

Index

About the Authors

Foreword by Iona Bain

I only started investing in the last few years, as a self-employed woman hurtling towards her thirties. Well, we all have to learn as we go and make our own mistakes but I can honestly say I would love to have had this guide in front of me before I embarked on the journey. That’s because it’s all too easy nowadays to be lured by the bright lights of the share trading revolution. It’s a world where, for all the fancy sliders and emojis, education and enlightenment are in short supply.

Yes, it’s great that we now have apps which open up the world of investing to anyone with a phone. Anyone with money to put aside for the long term must understand that inflation is outpacing today’s savings rates. But it’s even more important to learn the difference between trading for fun, which is akin to gambling, and investing, which is a programme of care for your future self. A programme needs rules and rules must be based on the best possible science or evidence.

The problem is that there is a big investment industry out there, which in many ways is out to befuddle us and blind us to science. It is constantly suggesting new ideas, themes, angles and solutions, which will offer a route to riches. In reality, this is promotional material – what this book calls ‘the investing equivalent of fast fashion’. I know, because when I opened my first share trading account, I plucked out a bunch of shares and funds which appealed to me, based on ideas picked up from financial media. I didn’t think much about how they all hung together, or whether the tips could be backed up with convincing research.

As a journalist constantly engaged with financial news, it’s tough to ignore the zeitgeist. But the authors’ suggestion that following too much news about investing is a bad idea has really struck home with me. Might it actually make far more sense to use a set of evidence-based rules to build my little portfolio (or to find an adviser, one who is firm on evidence-based investing, who can take it on for me)? Then just walk away and leave it to grow …

Women are said to be more cautious investors than men but that can be an unhelpful idea. It suggests that men are prepared to take more risk and will therefore achieve better returns. But this book underlines that while attitudes to managing money may differ, women and men have the same emotional and intellectual potential to be successful investors.

I also like Robin and Jonathan’s reminder that capitalism will not go out of fashion any time soon. Investing is an act of faith in the spirit of human enterprise, in the way entrepreneurs and companies adapt and innovate – for instance, in response to climate change policies.

In my own book, Own It! How Our Generation Can Invest Our Way to a Better Future, I called investing an act of ‘practical hope’. This book proves why there’s plenty of cause for it. So I recommend you settle in and make time to read – and enjoy! This friendly, no-fuss book will help you to pay attention to the evidence, not the headlines. And it gives you the tools you need to put its smart rules into practice, setting you on a path to long-term financial freedom.

Iona Bain is an award-winning speaker, author, writer and broadcaster on a mission to help people, especially younger people, get to grips with personal finance.

Introduction

This book distils the evidence and experience we have both gained in the field of money management. Our aim is to help you and thousands of other readers plan for a better financial future. You could take your choice among numerous other books addressing this topic – there’s no shortage! So why one more, and why this one?

There are many other great books and many writers and bloggers we admire but neither of us could find a single book that hit all our marks:

• We wanted to take as much fear and complexity as we could out of the pensions system, and the rollercoaster rides of markets.

• We didn’t want a book that makes money management sound easier than it is or that leaves you ‘high and dry’ at the level of theoretical principles. For example, planning for your financial future involves not just what you earn and how you invest it, but how it is taxed. No government has managed to make taxation simple! Addressing this and other topics has led us into practical detail, more than other books.

• We wanted a book that worked hand-in-glove for readers in the UK. Many of the best books on this topic are written for readers in the US. Much of what they say is transferable, but not all of it.

• Above all, we wanted it to be based on evidence. Not anecdote and not folk wisdom. With something as precious as your financial future, you need it to rest on solid foundations.

Robin writes: My investing wake-up call

As the celebrated investor Warren Buffett once said, risk comes from not knowing what you’re doing. In my experience, there are plenty of people who think they know about investing but actually don’t have a clue. They’re taking big risks – not least the risk that they’ll outlive their savings and end up relying on the state or their loved ones to support them financially in their later years.

For many years, I was one of them. I devoured the money sections in the weekend papers. I regularly checked the FTSE 100 Index and the price of the shares I owned. I fancied myself as a bit of an expert. In fact, I was making mistake after mistake. It was only in 2010, while making an online documentary about investing, that I realized how deluded I had become. I was shocked to learn that, since the 1950s, there’s been a broad academic consensus on how to invest successfully, yet most investors do virtually the opposite. Worse still, those same investors are actively encouraged to do so by financial professionals, most of whom are either unaware of the peer-reviewed evidence or simply choose to ignore it.

Had I known what I know about investing now when I was 21, I would be far better off today. In fact, I would probably have retired some years ago. And that’s precisely what inspired me to start my blog, The Evidence-Based Investor, to promote financial literacy and to campaign for a fairer, more transparent industry. It’s also why I’m working with Jonathan on this book. Life is short and earning money is a means to an end, not an end in itself. This book presents, simply and accessibly, the most reliable and efficient way to fund the life you want to lead. Enjoy it, learn from it, but most of all, act on it. Your future self will be forever grateful.

You will have seen from our biographies that neither of us has a background as a financial adviser or a professional investor. Over a working life of about 30 years, we have both been through the painful process of moving from baffled outsiders to careful explainers of the financial system.

Jonathan writes: A French view on our financial system

My family has long connections with a family in France. These go back to a French exchange my father made from a grey and gloomy Bristol in 1947, across the Channel to explore the wonders of Versailles. That penfriend and language exchange has spanned two generations.

One of the family members of my generation I’ll call Jean-Pierre. We have known each other since the 1970s. He is a great Anglophile and when he married, it was to an Englishwoman. I was very happy and intrigued when after so many years of visiting the UK, he finally moved and began a professional life here. Sometime in the early years of that new period in his life I asked him what he had learned about the UK from the inside. What had he not known or understood about our country despite all his holidays and brief visits?

Jean-Pierre could have addressed any topic at all, but his response intrigued me: he said that in contrast to France, he was astonished by the complexity of the UK’s system for retirement planning and the burdens it put on people of all levels of education and background.

‘What burdens?’ I asked.

He answered: the burden of taking life-changing financial decisions, decisions that then play out on the shifting sands of financial markets. And with the backdrop that nobody knows how long they will live. Jean-Pierre felt that even as a well-educated professional, he was finding these burdens quite difficult. He was concerned about what it must be like for people with fewer opportunities and less money to spare.

This conversation has never left me and is one of the reasons I am so passionate about making it easier to deal with those burdens. There will always be natural uncertainty about the future. Why does our system make that even harder by adding complexity and confusion to the mix? That is not to say, by the way, that I think the solution to your retirement problems is to move to France! France has a retirement system that still puts much more responsibility on the state rather than the individual, but there are deep questions about its sustainability. By contrast, the UK has lost most of its guaranteed company pension schemes and it has the worst state pension of any comparable country. So as a country, we load much more onto individuals than we did even 15 years ago, let alone 50.

As part of my work for the UK government on these matters, I came into contact with specialists from banks, regulators and financial education from many countries around the world. The systems I came to admire the most were those of the Netherlands, New Zealand, Australia and Sweden. The systems in the UK and the US are not dreadful, but they’re not exemplary either – they’re just dotted with pros and cons. There is no doubt though that in the UK, enormous responsibility falls on you and that is why we want to make this book as helpful and practical as possible, so it can help you to live with those responsibilities.

So we want this book to change people’s lives and we hope it will change yours. That’s a big ambition, but too many people are wrestling with money and pensions and that’s got to change. We have written this book for people in the UK who feel they don’t know enough about pensions and investing to plan for their retirement. Or who feel they know a reasonable amount, but aren’t doing everything they can to put it into practice. If you don’t live in the UK, you will still find a great deal of useful learning here, but be aware that everything we say about taxes and product rules (as opposed to the basic principles of investing) will be different in your country.

If any part of your retirement plan will depend on savings and investments (rather than a guaranteed income from an employer’s or state pension), we are here to help you. We have road-tested this book – everyone who read it said they made a change to their money management as a result. The changes you make may be small, or they may be large, but we believe that reading what we say should not be an exercise in theory. When you reach the end, we want you to be able to take action:

• You will see how money fits into a happy life, according to the best evidence available about human psychology.

• You will understand what you can control about your future finances and what you can’t. You will therefore be able to focus on what you should worry about – because you can change it!

• You will understand the rules of the game we all have to play in: the laws, regulations and taxes affecting markets, and therefore you.

• You will understand the best and latest evidence about how to get your money to grow as much as possible while you worry about it as little as possible. The great news is that this can be distilled to six simple rules. (If you like spoilers, we set out these rules at the end of this book, alongside a downloadable workbook that brings together all our practical steps.)

• You will understand how financial advisers can help you to check your thinking. There are certainly times when it’s cheaper and at least as effective to go to other people or sort things yourself, as to visit a financial adviser. But whoever you do it with, checking your thinking about retirement planning is a very important follow-on from using this book. And we have a vital message that covers this in a bit more detail at the end of Chapter 2 (Invest in … Yourself, here).

• The final section of this book introduces a workbook designed to help you take action. It will help you to take stock of your financial situation, map future life goals and put together a high-level plan to achieve them.

Don’t expect to read this book in one sitting. If you alternate the chapters with the tasks from the downloadable workbook, it will take a little while – especially if you have to gather information about current pensions from financial providers. We believe that the work in the workbook (see here) will take most people about three days to complete. That’s not just the work you’ll need to do, but also talking it through with a friend or partner. That may sound a lot so it’s a good idea to break it into chunks and do it as you go through the chapters. And what is an ‘investment’ of three days against the reward of setting your future life after work – which might be as long as 20, 30 or even 40 years – on firm foundations?

The best way to start is to start

Taking control of your financial future might seem complex and it may be something you’ve put off for a good while. If you’re worried that you might just read the book and still put off taking action, we suggest you take some steps to prevent that:

1 Thumb through the rest of the book and work out how long it will take you to read Chapters 1–9.

2 Thumb through the final section, and download the workbook, to see what it involves.

3 Pre-commit. Write down somewhere (on a calendar, in an email to a partner or friend, or in a prominent place where you can see it) the dates when you plan to a) read the main chapters of the book and b) finish the workbook.

You might wish to book a weekend in your diary to go through most of the downloadable workbook. That way, you have a built-in deadline. And you can co-ordinate with a partner to make sure you are both available and aligned at the same time.

Experimental evidence suggests that pre-commitment deadlines like these are effective in helping people who may be tempted to put off complex and demanding tasks. A 2002 study by Dan Ariely of the Massachusetts Institute of Technology (MIT) and Klaus Wertenbroch of INSEAD demonstrated this.* ¹ It set students tasks and let them choose whether they gave themselves deadlines earlier than end-of-term. There were penalties for late submission and for poorer work. The students who chose to take an earlier and harder route did better. Most people who pre-committed to earlier deadlines than strictly required received higher grades. By contrast, students who were given naturally spaced deadlines, or who only worked to the last deadline at the end of term, scored less well. You may do even better if you pre-commit to someone other than yourself. Is there somebody you would trust not only with a deadline, but with whom you could talk through financial matters as you work through this book? We strongly recommend you try to find such a person.

Jonathan writes: Talking about money – the British problem?

My work at the Money Advice Service (now MoneyHelper) meant that a lot of excellent research crossed my desk. A recurring theme is the embarrassment that stops people in the UK from talking to their family, friends or even their partner about money.

This creates serious problems. The most striking example is when people have serious debts that they can’t manage. An independent review of debt advice quoted the charity Christians Against Poverty, which helps people who have unmanageable debts. Christians Against Poverty found that 33 per cent of their highly indebted clients had waited more than three years before seeking help, 51 per cent had waited more than two years and 66 per cent had waited over a year. Among them, 49 per cent stated the reason for delay was embarrassment or shame and 43 per cent because they thought no one could help.² Needless to say, by the time clients had waited between one and three years to address serious debt problems, the debts had mounted. So their problem was significantly harder to address. But even in less extreme cases than problem debt, the confusion and mystery around good financial planning and management is simply increased by the lack of talk. We don’t talk about money so how can we learn from others?

If you can find someone with whom you will feel comfortable talking about the contents of this book, you will gain in many ways. You can test your assumptions with them, they can check your maths and they can help you to find further ways to commit and take action.

A word about choices

In this book we’re going to cover a wide range of mainstream choices that people can make about their pensions and investments. Of course we know that a big factor, perhaps the biggest one shaping your choices, is how much money you have. We talk about investing in other accounts as well as a pension, or building up a cash reserve outside your pension. Some readers will know that their money won’t stretch that far. We mention this upfront because we have to strike a difficult balance – between being realistic and encouraging people to set their sights as high as they can.

We try to write with humility and sensitivity, knowing that this book needs to be useful to a wide range of readers. Our readers will have different incomes, different levels of wealth and different spending and saving needs.

We hope that if you can’t take up all the choices set out here, you will be able to make the best of the choices you do have and that your knowledge about the other choices will be useful later in life. What seems impossible now may become a possibility in the future. Above all, we ask you not to be discouraged. We talk about ‘climbing a pensions mountain’ in Chapter 3 (Manage Your Money, see here). That is often how it feels – a long, exhausting slog with the summit seemingly as distant as ever. But if you have climbed a mountain, you’ll know that you can often lose sight of the summit for most of the climb and then it will appear, near at hand, when you least expect it.

How we ask you to approach this book

There are two people you need to think about as you read through these pages. You will hear us talking about both of them – and they are both yourself! The person that most people find it harder to help is their future self. The future seems very distant; people aren’t certain that they will reach it and they don’t know what it will look like, so there is a natural urge to prioritize another person: your current self. Your current needs are urgent and if you satisfy them, gratification comes a lot sooner. But as we will set out in Chapter 2 (Invest in ... Yourself, see here), these two selves can and should come to a mutually beneficial understanding. We will try to help you work that out as you work through the book.

We hope and intend this book will help you to base your future financial plans on evidence. The flipside is: we ask you to set aside what you think you know about money and financial planning as you read it. You may be very well informed about the evidence or you may have been more influenced by the myths and dreams peddled by the investment management industry. These tend to help middlemen to get rich from your savings. More on this later! Either way, we ask that you start with a ‘beginner’s mindset’ so leave behind your knowledge and preconceptions as you journey through the topics.

What we mean by evidence

For us, there are four important questions you should ask when presented with anything purporting to be research on how to invest. You should ask these about what you read in this book – and even more