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  • FIRST POST
    • simonineaston
    • By simonineaston 19th May 17, 12:21 PM
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    simonineaston
    Newbie Q re returns on investment
    • #1
    • 19th May 17, 12:21 PM
    Newbie Q re returns on investment 19th May 17 at 12:21 PM
    I already know the answer is "It depends..."! but would folk humour me and tell me what sort of returns I can expect from investments - I'm new to all this and simply need a ballpark figure to kick off my expectations. I'm talking about assets of around 400,000 pounds and am looking to get a monthly income - what are realistic expectations? I know it all depends on my attitude to risk and ethics etc. etc. but I honestly don't yet have a handle on the sort of rates of return I'm likely to get - 1%, 5%, 10%, 25%... any clues?
Page 1
    • Linton
    • By Linton 19th May 17, 12:45 PM
    • 7,653 Posts
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    Linton
    • #2
    • 19th May 17, 12:45 PM
    • #2
    • 19th May 17, 12:45 PM
    Based on a 100 years of history a reasonable long term sustainable drawdown increasing with inflation could be around 3.5% of the initial pot size per year if you werent prepared to accept some variability of income depending on market conditions rising to perhaps 6% if you were. Normally you should be able to get higher returns, however problems arise when drawing down at a time when prices are falling as you are cutting into the base investment you need for future income. Of course the next few decades may be quite different to the past 100 years. So there is significant risk in those figures.

    In either case you would need good investment skills to safely maintain those numbers and not be overcautious in your investments. For an amount the size of 400K and with your lack of financial experience I strongly suggest you talk to an IFA.
    Last edited by Linton; 19-05-2017 at 12:48 PM.
    • ColdIron
    • By ColdIron 19th May 17, 12:49 PM
    • 3,141 Posts
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    ColdIron
    • #3
    • 19th May 17, 12:49 PM
    • #3
    • 19th May 17, 12:49 PM
    What fuel mileage can I expect from car?

    Your return is largely up to you but 3.5% plus inflation wouldn't be an outlandish expectation as long as you aren't trying to shoot the lights out
    • dunstonh
    • By dunstonh 19th May 17, 12:50 PM
    • 87,697 Posts
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    dunstonh
    • #4
    • 19th May 17, 12:50 PM
    • #4
    • 19th May 17, 12:50 PM
    It cannot be put in a simplistic way you want.

    You need to look at the risk profile of the investments. Lower risk investments will be less volatile but typically result in the lower returns over the long term. Higher risk will be higher in volatility but typically result in higher returns over the long term (and by higher risk, I am referring to mainstream conventional - you can go stupidly high risk which can become speculative without complete wipe out possible)

    There are risk scales. The best ones benchmark cash to 1 and the highest risk conventional unit linked options to 10. (This allows the specialist and speculative to not be included and distort the scale). So, you would need to consider where you are on the risk scale. This is not just about saying you can accept a loss. It is one thing to say you can but its another when your 400k invested turns into 300k in the space of a week. You also need to be able to afford it. Some say there is no point taking more risk than you need to. Some believe their money should work for them whether they need it or not.

    On the criteria you have given, you could expect anything from minus 80% to plus 80% in any given 12 month period. Hence you need to narrow down risk profile etc to get any meaningful answer.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • AndyT678
    • By AndyT678 19th May 17, 12:51 PM
    • 649 Posts
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    AndyT678
    • #5
    • 19th May 17, 12:51 PM
    • #5
    • 19th May 17, 12:51 PM
    Based on a 100 years of history a reasonable long term sustainable drawdown increasing with inflation could be around 3.5% of the initial pot size if you werent prepared to accept some variability of income depending on market conditions rising to perhaps 6% if you were. Normally you should be able to get higher returns, however problems arise when drawing down at a time when prices are falling as you are cutting into the base investment you need for future income. Of course the next few decades may be quite different to the past 100 years. So there is sitgnificant risk in those figures.
    Originally posted by Linton
    Whilst the numbers above are perfectly reasonable figures for a long run average you also need to recognise that returns in any individual year could be in a range from about -50% to +30%, especially if you're targeting the 6-7% long term average.
    • Linton
    • By Linton 19th May 17, 12:54 PM
    • 7,653 Posts
    • 7,427 Thanks
    Linton
    • #6
    • 19th May 17, 12:54 PM
    • #6
    • 19th May 17, 12:54 PM
    Whilst the numbers above are perfectly reasonable figures for a long run average you also need to recognise that returns in any individual year could be in a range from about -50% to +30%, especially if you're targeting the 6-7% long term average.
    Originally posted by AndyT678
    Indeed - my comments are based on the need for monthly income rather than the returns in a random year.
    • bostonerimus
    • By bostonerimus 19th May 17, 1:31 PM
    • 101 Posts
    • 59 Thanks
    bostonerimus
    • #7
    • 19th May 17, 1:31 PM
    • #7
    • 19th May 17, 1:31 PM
    Based on a 100 years of history a reasonable long term sustainable drawdown increasing with inflation could be around 3.5% of the initial pot size per .
    Originally posted by Linton
    If you have 60% equities and 40% bonds then you can probably sustain a 3.5% inflation linked drawdown for 30 years.

    If you are talking about the average annual return of a 60/40 portfolio then I's say 5% or 6% would be a conservative estimate for planning purposes.
    Last edited by bostonerimus; 19-05-2017 at 1:33 PM.
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