A short history of investing
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincoln or other local offices.
For hundreds of years humans have invested, by allocating money with the expectation of higher returns in the future. Whilst digital technologies have revolutionised the way we invest in the 2020s, the principles of successful investing are not as novel. By looking at the past, investors can learn useful lessons about how to build a strong, long-term investment plan.
In this article, our financial planning team offers a summary of some of the highlights of how investing has developed since the 17th century – alongside the lessons these can offer us. We hope you find this content helpful. If you would like to discuss any of these matters or discuss your own financial plan with us please get in touch to arrange a no-obligation financial consultation, at our expense:
01476 855 585
info@casfin.co.uk
Ancient roots
Investing is over 1000 years old. In ancient Mesopotamia (i.e. near modern-day Iraq), The Code of Hammurabi provided a legal framework for pledging land as collateral when making a project investment. Yet modern investing – i.e. involving the likes of stock markets – is traced back to the 1600s, when the ships of major European powers were transporting goods from Asia and the East Indies back to the continent (e.g. spices).
These long naval journeys involved considerable risk, despite popular demand for the goods they brought. To avoid the catastrophic losses that would result from investing in a single vessel that sank, therefore, investors committed capital to several ships and voyages to “spread out” their risk. This eventually led to the formation of major shipping companies (e.g. the East India Company) which enjoyed Royal Charter status, reducing competition and boosting profits.
The stocks of such companies could be bought as legal documents written down on paper. Yet finding buyers was often difficult for company owners. To resolve this, stock exchanges sprang up – such as the Amsterdam Stock Exchange in 1602 – to allow investors and stock sellers to easily find and engage with each other. 200 years later, the London Stock Exchange was born.
How investing has changed
The investment landscape in 2021 looks very different to 400 years ago. First of all, there is much more choice. Whilst wealthy investors in the 17th Century were limited to the likes of shipping companies, in 2021 even those with limited net worth can invest in bonds, commercial property, commodities (like oil) and equities in a wide range of sectors like finance, healthcare and mining. Moreover, rather than investing in individual companies, investors can also commit capital to funds which spread it across multiple companies – to reduce risk and access more investment opportunities. Secondly, technology has radically changed things too. In the 1600s buying stock was based on paper which could be lost or destroyed. Today, investments are largely held digitally via online platforms – where data is stored on secure servers across the internet. Trades are also executed far more quickly using sophisticated computer algorithms, rather than human minds.
Investing in the modern world
Perhaps the most notable feature of stock markets is that they go up and down. Those with portfolios stretching back several decades will likely remember the pain of the dot-com bubble “bursting” in the late 1990s, the 2008 Financial Crisis and, of course, the recent 2020 crash caused by COVID-19. Yet the fluctuation of stock values is nothing new. The famous Sir Isaac Newton, born right here in Grantham, Lincolnshire, lost £1,000s after his South Sea investment plummeted and failed in the 1700s. The key lesson from history is that, whilst markets often crash and rise in the space of just a few years, over many years and decades they recover and surpass where they were.
This means that investors today in 2021 should be committed to a long-term strategy for their portfolio, avoiding the temptation to try and “time the market” consistently by jumping onto the latest, “hot stock”. History also shows that diversifying your investments – i.e. spreading them out across different markets, companies and asset types – is wiser than committing huge amounts of capital into a single venture, or investment opportunity. We are fortunate today to have access to a huge range of investment choices, especially through the internet (although caution needs to be exercised to avoid scams). History shows, again and again, that following the crowd is dangerous when it comes to investing. Rather, sticking true to your strategy will usually pay off in the long run. Carefully consider your investment goals, your time horizon and also your appetite for investment risk. One of the biggest mistakes an investor can make is not being honest with themselves (and their financial adviser) about how much risk they are able to stomach during a stock market crash. After all, you do not truly make a loss in the stock market until you sell your investments and “crystallise” it. If you have the ability to patiently weather the turbulence however, then this is usually rewarded with more investment growth in the years that follow. A financial adviser can help you craft an appropriate strategy to see you through this.
Conclusion & invitation
If you are interested in discussing your own financial plan or protection strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585
info@casfin.co.uk
