Don't cash in your final salary pension
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According to Credit Suisse the worst period for shares in general since 1900 encompassed the panic of 1907, the First World War, and the immediate post war depression. For US shares this was 1906-21 and a bit longer for the UK from 1900-21, as you can include the Boer War. There was no positive return taking into account dividend re-investment over this time but not investment charges which could have eaten into it. Mind you that was some combination of factors.
If you'd put your money into Italian shares in 1906 you needed to wait until 1980 to make money, so they claim.
Interesting. Do you have a link JezR?0 -
Yes although that's with gross income reinvested - presumably not accounting for charges and possibly tax?The difference is that I picked the same day each year while you picked the highest price in 1900. The numbers there aren't consistent with those from the 2016 Equity Gilt Study (page 74) but let's pretend and say what you would have demonstrated:
1. If a person bought only the shares in the UK market and nothing else at the highest price seen in 1900 and never again, and
2. Threw away about 4% a year in dividends, which aren't in this index
3. The capital value would not have recovered until 1944.
To see something a bit more realistic look at Figure 5 on page 72 which shows the inflation-adjusted values including dividends.
Dividends are certainly key though - the raw figures show you definitely can't rely on growth - look at the table in figure 7 on p.74. Equity price index adjusted for cost of living - 100 in 1899, down to 95 in 1985 !! 86 years later the real terms capital value is lower!
For a lot of the 70's and 80's the price is considerably lower - in 1974 it was 30! Under a third of the real terms capital value in 1900!
That all seems to be nominal not real terms.While there were periods of drops it was mostly better throughout the period and at around nine times the value by 1953. Page 62 has more charts showing the huge difference in outcomes - the dividends reinvested one has to use a scale up to ten million while not reinvested only has to go to one hundred thousand.
Minus charges of course. Which could eat up half of the dividends.By throwing away the dividends you grossly misrepresented what someone would actually have experienced.
Like the UK index that is just share prices and ignores dividends. Though it's worse still for Japan because I think it has fairly consistently suffered deflation throughout the period.
There definitely isn't a guarantee with equities but it isn't really very realistic to ignore half of the investment returns. Particularly when the bit being ignored is roughly enough to pay for the whole income need of the 4% rule that a retiree might be using for income.
But yes, dividends obviously change the equation, as do charges and inflation. But the point is - there are no guarantees with equities even over several decades.0 -
woolly_wombat wrote: »Interesting. Do you have a link JezR?
I found it referenced in some article but I believe the detail is in one of their yearbooks that isn't directly linkable but can be found with searches. 2012 I think, although similar ground might be covered in later editions as they seem fond of doing 100 year studies.0 -
Free the dunston one next time too.0
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