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  • FIRST POST
    • simonineaston
    • By simonineaston 19th May 17, 12:21 PM
    • 73Posts
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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
    • 7,971 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
    • 3,191 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
    • 88,328 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 and have a 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.
    Last edited by dunstonh; 03-06-2017 at 12:01 PM. Reason: typo
    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
    • 692 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
    • 7,971 Posts
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    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
    • 507 Posts
    • 248 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.
    • simonineaston
    • By simonineaston 3rd Jun 17, 10:44 AM
    • 73 Posts
    • 25 Thanks
    simonineaston
    • #8
    • 3rd Jun 17, 10:44 AM
    • #8
    • 3rd Jun 17, 10:44 AM
    Just as a post script to this thread, where would folk keep their investment pot while they are deciding what to do with it? Obviously, there are better places to keep it - albeit temporarliy - than one's no / low interest current account, and at the same time, it doesn't seem to make sense to tie it all up in various complicated places, if it's all going to end up in other places, following the dleiberations of one's IFA!
    At the moment, my pot is sitting quietly in a Barclays Everday Saver, which attracts an AER of 0.05... although I'm just about to ring them to see if they can offer a better rate in another account!
    • AlanP
    • By AlanP 3rd Jun 17, 11:07 AM
    • 807 Posts
    • 554 Thanks
    AlanP
    • #9
    • 3rd Jun 17, 11:07 AM
    • #9
    • 3rd Jun 17, 11:07 AM
    £400k with one provider exceeds the FSCS protection limit pf £85k so either spreading it across a few different, non-linked institutions would be safer.

    NS&I is recommended on here quite often for short-term, high value as limit doesn't apply I think - If you trust HM Government.
    • Audaxer
    • By Audaxer 3rd Jun 17, 12:55 PM
    • 244 Posts
    • 71 Thanks
    Audaxer
    At the moment, my pot is sitting quietly in a Barclays Everday Saver, which attracts an AER of 0.05... although I'm just about to ring them to see if they can offer a better rate in another account!
    Originally posted by simonineaston
    That interest rate is only going to get you £200 per annum on £400,000. Even on a temporary basis you need to split it between various banks to get the FCSC protection of £85k in each. At the very least you should be able to get 1% without any difficulty - that's £4,000 per annum - while you consider speaking to various IFAs. Even if you do go through the IFA route, it would be worthwhile learning as much as you can on here so you can ask relevant questions so as you are not going to end up paying excessive costs.
    • bostonerimus
    • By bostonerimus 3rd Jun 17, 2:36 PM
    • 507 Posts
    • 248 Thanks
    bostonerimus
    Just as a post script to this thread, where would folk keep their investment pot while they are deciding what to do with it? Obviously, there are better places to keep it - albeit temporarliy - than one's no / low interest current account, and at the same time, it doesn't seem to make sense to tie it all up in various complicated places, if it's all going to end up in other places, following the dleiberations of one's IFA!
    At the moment, my pot is sitting quietly in a Barclays Everday Saver, which attracts an AER of 0.05... although I'm just about to ring them to see if they can offer a better rate in another account!
    Originally posted by simonineaston
    Leave the money in the bank until you have a plan.

    What exactly is your situation/......how old are you? are you working, how much income do you need and for how long? Do you own a home.......do you want to......do you have other investments in a pension or ISA? Are you ok with taking some risk to have a chance of higher returns?
    Misanthrope in search of similar for mutual loathing
  • jamesd
    Part of the answer depends on how much income you're after and why. It's not currently hard to get 12% or so from peer to per lending secured on property through the likes of Ablrate and MoneyThing though you should allow 1-2% for bad debt after the security of any defaulters has been taken and sold. At the moment I have more than £50k in each and an average interest rate of about 12.7%. Any of the currently available primary (new loans) and secondary (buying from others) deals at either place is OK so you could start out just by spreading the money fairly evenly until you learn more.

    FundingSecure and Collateral are also worth a look but it's essential to consider each loan individually at those places. Raw interest rates are similar but default losses may be higher and will be if you're not selective about which loans to invest in.

    FundingSecure currently has an innovative finance ISA available, Ablrate expects theirs in a few weeks. MoneyThing expects to do one but not for at least many months.

    It'll be hard to get sensible, informed advice about P2P from a UK adviser at present and if you get much comment it's most likely to say that it's high risk unsecured lending without explaining that the UK stock market is high risk, anything about the different characteristics of the risk and probably without knowing that all of the places I mentioned don't do unsecured lending.

    If your purpose is retirement income drawdown you should read Drawdown: safe withdrawal rates for an introduction to the subject and do at least some exploring with cfiresim. Assuming that you're willing to do the fairly minimal work of following the Guyton and Klinger rules a safe withdrawal rate of six percent or so is likely. Higher once you add in the effect of the state pension. Guyton also has rules to reduce the effect of drops in markets called sequence of return risk and you should become familiar with that and the underlying research.
    Last edited by jamesd; 03-06-2017 at 4:39 PM.
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