Unlocking wealth potential

The Weekender offers my perspective on market developments and their potential broader implications, written most Friday afternoons. If you'd like this delivered to your inbox on Saturday mornings via Northern Trust, please sign up here.

The best advice I never received

As we’ve written previously, I wish someone told me at a young age that if I wanted to be wealthy when I grew up I should start investing a little and often and let the mega-forces of compounding and dollar-cost averaging do the rest. And the best time to start? At birth. Well, this is something every child in America may be about to do. ?

Tech investor Brad Gerstner is sponsoring the Invest America initiative to expand financial literacy, close the wealth gap, restore faith in markets and give every child an opportunity to participate in the growth of the US and its stock market. It may even ignite a baby boom. It’s a brilliant idea. I believe the British should do the same.

After all, it was their idea to begin with.

Start early

The only free lunch in investing is that left by the person who ran from the restaurant (the desperate seller). Or by starting early.

Time amplifies compounding. Think of the small snowball and a very long hill. Think Buffett, who made 94% of his wealth after his 60th birthday or the 42nd fold of a piece of paper – which reaches to the moon. It’s this power of compounding that underpins Invest America and which seems to have bi-partisan support, with hopes of being implemented next year, just in time for America’s 250th anniversary.

What a birthday present.

Invest America

The idea is to provide each newborn (c3.7m each year) with an Invest America account, seed it with $1,000 and treat it as a 401K from birth. Tax breaks would exist for family members, charity or employer contributions, and the money would be invested in low-cost S&P Index fund, tapping the powers of compounding, dollar-cost averaging, and diversification. As Gerstner mentions in this interview (listen from 37mins) had this started 30 years ago, a 29 year-old today would have $250k in their investment account, enough to start a business, put down a decent house deposit or get a degree in a top University. By having skin in the game, children will learn about compounding, understand what it means to be an owner, what a stock is and what inflation does. It could flip debt and (state) dependency on its head, help remove inequality and align every child to the growth of America.

Such a good idea, it’s a shame we in the UK didn’t think of it.

Wait a minute – we did.

Britain’s greatest export (save pessimism) is ideas

Yes, the British, as they often do, invented a concept only for the Americans to then (probably) make it a success. See also: the typewriter, telephone, photography, the flushing toilet, computer, crossword puzzles, AI (the Turing Test) and more recently the World Wide Web. And yes, back in 2002 the Labour government started seeding new-born accounts in what was called the Child Trust Fund (CTF).

It operated for nine years until disbanded by the Conservative-Lib Dem coalition government, during which 6.3 million people were born. Apparently, there is now ￡1.4b ready to be claimed, although staggeringly many do not know the accounts exist! True story. (And you thought low financial literacy was a problem in America!).

Is it little wonder the most popular contemporary TV show in the UK is The Martin Lewis Money Show. A program that deals with the problems of financial illiteracy, like debt management. For a contrast, think Jim Cramer’s ‘Mad Money’.?

Cultural change

There are numerous things we could do to help improve our capital markets. However, many seem short-term and superficial and address only the symptoms of our malaise, not the cause. Arguably we need to go deeper and change culture, by which I mean changing the people – their ideas and anchored beliefs. Hard to do. An easier, albeit longer term approach, could be to change the conditions of those less anchored or affected by context; the young; for you can’t have a revolution without them. And we need a revolution. In hope. Let’s empower them with financial literacy, give them tools (and importantly capital) to provide economic security to their families, and wealth creation to their communities.

The Labour Government needs a rebrand, and a way to reconnect policy with their promises. So make this policy. Steal back their idea and restart what they finished. Unlock the powers of compounding, give kids skin in the game, and allow them to share in the growth of our economy.

But this time do it differently. Do it better.?What say you, Rachel?

“Invest UK”

They should include technology and financial sectors to expand financial literacy and increase RoI. Surely there is a deep-pocketed entrepreneur out there passionate about education who would love to create curriculum, one that’s app-based with zero marginal costs to distribute. A game perhaps? I’ve spoken to one or two high-profile gentlemen who would act as champions (for change needs a champion). And I’m certain I could find a friendly index provider happy to run the tracker fund (!!). But let’s not invest all the money into the FTSE All Share. Let’s portion some for privates, especially start-ups. This will help close the funding gap, promote innovation as an asset class, drive job growth and investment (UK investment/GDP is the lowest in G7) and improve productivity. I know a few who could help there too.

Perhaps we could gain favour from Trump by focusing resource on key verticals for geo-political and economic security like those detailed in the Atlantic Declaration: defence, climate, quantum, supply chains, AI and space. This could signal that Prime Minister Starmer truly believes in the ‘special relationship.’

Who pays?

Just an idea, but perhaps they could fund this by clipping a little of the ￡8b tagged for Ed Miliband’s Great British Energy? Afterall, it seems to be the wrong side of the current Vibe shift and may even prevent Starmer’s dream of the UK becoming an AI Superpower. Why? Because the bottleneck for AI is electricity. And Britain has very high electricity prices, some three times that of the US where its electricity grid is powered by cheap and reliable natural gas. The UK’s is powered by comparably expensive and unreliable wind.

Consider: if Britain’s electricity was used exclusively to power Sam Altman’s idea of building 5GW datacentres, it could manage just 6? (according to Argonaut Capital). So, it seems unlikely the UK could become a superpower in AI like the US, unless energy policy alters course. Which it could, of course. And if it did, it may even bring in more tax revenues.

Changing Britain from the inside out

Re-igniting this Labour idea could help change Britain from the inside out – encouraging children to start investing early, expanding their financial literacy, and helping them tap the power of compounding. Doing so could build a new legacy: kick-starting an investment and equity culture, and helping remove inequality, improve productivity, and ultimately, deliver on Labour’s election promise: growth.

Yours in hope,

Gary

P.S. When a stock goes up on bad news, pay attention.

See UK and German headlines (not good).

Now see their stock markets: all-time highs.

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