What caught my eye this week.<\/em><\/p>\n A<\/span> nice coincidence saw Joe Wiggins at the Behavioural Investment<\/a> <\/em>blog write about the downsides of friction-free investing in the same week that Freetrade<\/em> was acquired<\/a> by IG Group.<\/p>\n IG does offer share trading, but it\u2019s still known primarily as a spreadbetting firm.<\/p>\n And while I\u2019d argue Freetrade<\/em> \u2013 in which I was a tiny early investor \u2013 provides a less gamified trading environment than, say, Robin Hood<\/em> in its pomp, many investors will still overtrade when there\u2019s no explicit cost for doing so.<\/p>\n Wiggins writes:<\/p>\n The issue for investors is that technological developments have made many things easy \u2013 checking portfolios and trading \u2013 but without careful consideration of the negative behavioural implications.<\/p>\n Investors have ended up in a situation where we are overwhelmed by emotional stimulus and have no friction to stop ourselves reacting to it.<\/p>\n It is as if the industry has said \u2013 \u201chumans are prone to costly behavioural mistakes, so let\u2019s make them as easy as possible to make\u201d<\/em>.<\/p>\n<\/blockquote>\n Wiggins says it\u2019s both the best of times and the worst of times to be an investor.<\/p>\n We all have easy access to the tools we need nowadays to invest to meet our long-term goals.<\/p>\n You can buy and hold a basket of thousands<\/a> of the world\u2019s best companies for peanuts. Choose the right cheap platform<\/a> and it\u2019ll cost you very little to let it compound for decades.<\/p>\n However we still have the biggest hurdle to get over \u2013 ourselves<\/a>!<\/p>\n It\u2019s not yet clear what the consequences of zero-fee trading<\/a> will be for investors as a whole.<\/p>\n It\u2019s still a safe bet that a majority of DIY stockpickers will be taken out to the woodshed and shot \u2013 or less sensationally that they\u2019ll lose to the market \u2013 and that they\u2019d be better off in index funds.<\/p>\n Decades of data shows that\u2019s true for most people.<\/p>\n However research published<\/a> in 2023 by the University of California found the cost savings from zero trading fees do appear to boost returns:<\/p>\n The trading platform eToro\u2019s staggered removal of trading fees in different countries allowed the researchers to compare investors\u2019 behavior before and after fees were gone.<\/p>\n [Lead researcher]<\/em> Even-Tov and his co-authors looked at these patterns for over 40,000 investors between October 2018 and November 2019.<\/p>\n The research design proved particularly powerful as it cut across three different dimensions of trading behavior.<\/p>\n Even-Tov and his colleagues found, first and most intuitively, that the removal of fees increased trading frequency by an average of about 30%.<\/p>\n Having no fees also drew more people to the eToro platform: New users grew by 172% in countries without fees and only 18% in countries where fees remained in place.<\/p>\n Interestingly, the removal of fees also led people to hold significantly more diverse portfolios.<\/p>\n Most important, taking away fees improved net performance among traders.<\/p>\n<\/blockquote>\n Of course, \u2018improved net performance\u2019 still doesn\u2019t mean most people should go stock-picking \u2013 or churning a portfolio of index-tracking ETFs based on what Donald Trump last muttered, come to that.<\/p>\n If you lose to the market by a bit less because your trading commissions were zero, you still lost to the market.<\/span><\/p>\n But much more important is the big picture.<\/p>\n As Wiggins says:<\/p>\n The present environment for investors \u2013 defined by noise, emotional stimulus and an absence of friction \u2013 will almost certainly drag many of us away from investing and towards gambling, where our actions will be increasingly short-term and speculative with poor odds of success.<\/p>\n This is in the interests of some in the industry but certainly not most investors.<\/p>\n<\/blockquote>\n Have a great weekend.<\/p>\n Fixing my portfolio and my brain \u2013 Monevator<\/a> [Members<\/a>]<\/em><\/p>\n Financial freedom, working-class style \u2013 Monevator<\/a><\/p>\n From the archive-ator: Why I\u2019m saving and investing for the disaster to come \u2013 Monevator<\/a><\/p>\n Note: Some links are Google search results \u2013 in PC\/desktop view click through to read the article. 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Consider subscribing to sites you visit a lot.<\/em><\/p>\n Stocks bounce on cooler-than-expected inflation in US and UK \u2013 CNBC<\/a><\/p>\n UK economy disappoints despite return to growth \u2013 BBC<\/a><\/p>\n Investors pour billions into S&P equal weight fund as tech fears rise \u2013 FT<\/a><\/p>\n FCA could loosen mortgage rules to boost growth \u2013 BBC<\/a><\/p>\n What to expect from new pensions minister Torsten Bell \u2013 This Is Money<\/a><\/p>\n Property sellers in England and Wales make \u2018lowest returns in a decade\u2019\u2026 \u2013 Guardian<\/a><\/p>\n \u2026and why \u2013 This Is Money<\/a><\/p>\n Freetrade<\/em> faces investor backlash over its \u00a3160m acquisition by IG Group \u2013 Sky<\/a><\/p>\n Spain plans 100% tax for homes bought by non-EU residents \u2013 BBC<\/a><\/p>\n Silicon Valley\u2019s largest start-ups to shun IPOs in 2025 [Search result]<\/em> \u2013 FT<\/a><\/p>\n Trump 2.0 begins with US household balance sheets in great shape \u2013 Apollo<\/a><\/p>\n Is financial advice just for the rich? \u2013 Which<\/a><\/p>\n Get two years free EV driving with this charger deal \u2013 This Is Money<\/a><\/p>\n How to get the best value from pension annuities \u2013 Guardian<\/a><\/p>\n Get up to \u00a31,500 cashback when you transfer your cash and\/or investments to\u00a0Charles Stanley<\/a>. Terms apply \u2013\u00a0Charles Stanley<\/a><\/p>\n The best money-making apps and websites \u2013 Be Clever With Your Cash<\/a><\/p>\n Lifetime ISA faces an uncertain future due to Treasury review \u2013 Which<\/a><\/p>\n Ofcom enforces ban on surprise mid-contract telecoms price rises \u2013 Guardian<\/a><\/p>\n Open an account with low-cost platform InvestEngine via our link<\/a> and get up to \u00a3100 when you invest at least \u00a3100 (T&Cs apply. Capital at risk) \u2013 InvestEngine<\/a><\/p>\n Vanguard defends home bias in UK LifeStrategy funds \u2013 Interactive Investor<\/a><\/p>\n How poor insurance sales practices give false confidence to customers \u2013 Which<\/a><\/p>\n Flats for sale in fashionable parts of cities in England, in pictures \u2013 Guardian<\/a><\/p>\n There\u2019s always going to be a bigger boat \u2013 A Teachable Moment<\/a><\/p>\n What if stocks only rise 3%? \u2013 The Retirement Manifesto<\/a><\/p>\n Pursue the \u2018unnecessary\u2019 things in life \u2013 The Root of All<\/a><\/p>\n Mega cap world domination \u2013 A Wealth of Common Sense<\/a><\/p>\n [That<\/a>]<\/em> Rob Dix on the Seven Myths About Money<\/em><\/a> [Podcast]<\/em> \u2013 T.P.P. via Apple<\/a><\/p>\n Historical returns for all the main asset classes\u00a0[US but relevant]<\/em> \u2013 AWOCS<\/a><\/p>\n Why you don\u2019t need to worry about budgeting \u2013 Next Big Idea Club<\/a><\/p>\n Five ways to manage drawdown in retirement \u2013 Humble Dollar<\/a><\/p>\n US valuations are not in a bubble \u2013 Simple Living in Somerset<\/a><\/p>\n Peel Hunt\u2019s five equity income trusts for 2025 \u2013 Trustnet<\/a><\/p>\n Is the UK cheap? [Search result]<\/em> \u2013 FT<\/a><\/p>\n Terry Smith\u2019s Fundsmith underperforms for the fourth year \u2013 Morningstar<\/a><\/p>\n SJP: Investors should rotate into emerging markets and small-caps \u2013 Trustnet<\/a><\/p>\n Why Moderna and Pfizer have erased their pandemic gains \u2013 Sherwood<\/a><\/p>\n Americans still don\u2019t realise what TikTok is \u2013 Garbage Day<\/a><\/p>\n The TikTok ban shows America is at war with itself \u2013 Kyla Scanlon<\/a><\/p>\n Saving Time<\/em> by Jenny Odell \u2013 \u00a30.99 on Kindle<\/a><\/p>\n The Black Swan<\/em>\u00a0by Nassim Taleb \u2013\u00a0\u00a30.99 on Kindle<\/a><\/p>\n Good With Money<\/em> by Emma Edwards \u2013 \u00a30.99 on Kindle<\/a><\/p>\n Number Go Up: Inside Crypto\u2026<\/em>\u00a0by Zeke Faux \u2013\u00a0\u00a30.99 on Kindle<\/a><\/p>\n Climate \u2018whiplash\u2019 events increasing exponentially around the world \u2013 Guardian<\/a><\/p>\n Scientifically proving how whales found peace in war \u2013 bioGraphic<\/a><\/p>\n Nepal\u2019s leader says it has too many tigers. Does it? \u2013 BBC<\/a><\/p>\n Easing climate despair by volunteering to clean up a local park \u2013 Guardian<\/a><\/p>\n How climate change could make London much colder [Search result]<\/em> \u2013 FT<\/a><\/p>\n Cost to clean up toxic \u2018forever chemicals\u2019 could top \u00a31.6tn in UK and Europe \u2013 Guardian<\/a><\/p>\n Apple suspends AI-generated news alert service after BBC complaint \u2013 Guardian<\/a><\/p>\n Five ChatGPT prompts to quit your job and become a digital nomad \u2013 Forbes<\/a><\/p>\n Amazon races to transplant Alexa\u2019s \u2018brain\u2019 with Gen AI [Search result]<\/em> \u2013 FT<\/a><\/p>\n That sports story you clicked on could be AI slop \u2013 Wired<\/a><\/p>\n OpenAI\u2019s All in America<\/em> blueprint is just a list of demands for the US government \u2013 Sherwood<\/a><\/p>\n Minimum levels of stress \u2013 Morgan Housel<\/a><\/p>\n The typical man disgusts the typical woman \u2013 Bet On It<\/a><\/p>\n Tiny Islands<\/em> proves it\u2019s still possible to live a life of contentment \u2013 Guardian<\/a><\/p>\n How GLP-1s change what people buy and eat \u2013 Two Percent<\/a> [h\/t Abnormal Returns<\/a>]<\/em><\/p>\n The curious gems of the River Thames \u2013 Atlas Obscura<\/a><\/p>\n Confronting the consequences of falling global birth rates \u2013 McKinsey Global<\/a><\/p>\n Why skyscrapers became glass boxes \u2013 Construction Physics<\/a><\/p>\n Will this video game be the first ever billion-dollar entertainment made? \u2013 Guardian<\/a><\/p>\n Kevin McCloud of Grand Designs<\/em> reflects on his life \u2013 The i Paper<\/a><\/p>\n Marina Hyde: it\u2019s the tech bros inauguration derby \u2013 Guardian<\/a><\/p>\n Australian scientists dub unusually large new spider species \u2018Big Boy\u2019 \u2013 Independent<\/a><\/p>\n \u201cI used to think that if there was reincarnation, I wanted to come back as the President or the Pope or as a .400 baseball hitter. But now I would want to come back as the bond market. You can intimidate everybody.\u201d Like these links? Subscribe<\/a> to get them every Friday. Note this article includes affiliate links, such as from Amazon<\/a> and Interactive Investor<\/a>.<\/em><\/p>\n\n
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\u2013 James Carville, Strategic strategist to President Bill Clinton<\/p>\n