This is saving, not investment. Get it right!

Posted on January 6 2010

FT.com / Investments - Fund investment hits record levels.

The FT notes:

Private investors bought into funds at record levels towards the end of 2009.

Figures released on Tuesday by the Investment Management Association (IMA) show that net retail fund sales in November 2009 rose, month-on-month, to £2.4bn — the eighth consecutive month in which inflows from private investors topped £2bn. T

Total funds under management reached £467.3bn, which was 38 per cent higher than the total at the end of November 2008 — due in part to the increased inflows, but also to the 20 per cent recovery in equity markets over the 12-month period. By the end of November 2009, the FTSE 100 had climbed to 5,191, from 4,288 a year previously.

But let's be clear: buying second hand equities is not investment. No new economic activity results (except a rake off for the City). No productvity is promoted, no new asset results.

This is saving.

Saving is not the same as investment.

Surely the FT should know that and stop promoting the lie that the City likes to promote - that what they do when promoting saving is useful for the greater economy - when too rarely that is the case.

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3 Responses

  1. GWI says:
    January 6 2010 at 4:05 pm

    Buying ‘second hand’ equities is rarely ‘new’ investment; it typically redistributes ownership of the existing K-stock between optimists and pessimists about a particular share valuation. I think you could argue that such activity is not ‘new’ saving either, since the funds usually come from some other forms of saving. You’re quite right to chastise the FT about its lazy use of language, although financial journalists are often guilty of such practice.

  2. mad foetus says:
    January 7 2010 at 11:33 am

    Buying second hand equities may not be new investment, but surely there would be no investment at all if the opportunity did not exist to subsequently exit the investment. And that requires a secondary market.

  3. Richard Murphy says:
    January 7 2010 at 1:40 pm

    Mad

    a) The volume of sales cannot be justified

    b) Of course there is a need for a secndary market – but it must be correctly labelled

    c) Keynes was right – a few minutes trading time a day would be ample

    d) Savings should be given incentive to create real investment. No tax relief on pensions unless used that way, for example

    Richard