Possible to sue over bad advice?

ChloeRadshaw

turbobob wrote: »

So what's the argument then Chloe? That the no risk returns on cash in savings accounts will always beat what you can make by investing?

No - That you get qualified experienced IFA's saying in times of volatility - 'Dont worry about 20% swings if YOU ARE IN IT FOR THE LONG RUN;

This is nonsence - You need to have aggressive stop losses and forget this argument. Thats all I was trying to point out

I hear so many times dont worry its a long term investment without realizing that that argument does not stand up.

jamesd

kungfumaster, whatever fund it's invested in at the moment there's a good chance that you can get it with lower ongoing costs by switching to a discount broker like Hargreaves Lansdown.

As for holding property, now's a fair time to diversify: lots of places are down and some more than property, so there's no great reason not to switch some out of property into other sectors. Those might do worse than property in the short term, depends which ones you select.

If you want lowered risk you might look at these two:

BlackRock UK Absolute Alpha
Cru Investment Portfolio

You might also consider a corporate bond fund, this one has up to 20% equities included in the mix:

Invesco Perpetual Monthly Income Plus

If you're willing to accept more risk of drops greater than property you could consider one or both of these:

Invesco Perpetual Income
Neptune Global Equity

The first is still UK so doesn't add much extra diversification. The Neptune Global Equity fund is almost all non-UK but it's also one of the highest risk global funds. There are lower risk options available. Expect large swings in value from this fund - 40% wouldn't be at all surprising.

These last two probably are more risky than you'd want so I'm mentioning them more for times when there's a less high chance of drops, when they would add some useful diversification.

The chart shows how the volatilities differ (colors are red, blue, yellow, green, gray in fund order).

Aegis

ChloeRadshaw wrote: »

The FTSE100 is a DIVERSIFIED portfolio so your argument about all eggs in one basket simply does not stack up. You have banks, oil companies, blue chip shares and everything else.

It's not even close to properly diversified. The FTSE 100 is clustered into a small handful of sectors and is geographically restricted to pretty much only the UK in terms of where business is done. In contrast, my own diversified portolio contains funds dealing specifically with European companies, US larger companies, Emerging Markets (BRIC/EMEA), Global Equities, Natural Resources, Commodities, etc. Holding on to just a FTSE 100 tracker wouldn't even come close to getting me this level of diversification. Not to mention the fact that a savvy investor would realise that the companies making up the FTSE have for the most part saturated the market over the years, and between the largest companies in the same sector probably contain so much market share that the prospects for long term growth are low. As such, holding a FTSE 100 tracker is probably more likely to form part of an income strategy than a capital growth one, as dividends are likely to be higher with large caps.

Yes include dividends but ignore the cost of financing?

How much financing does one need to do to hold a FTSE100 tracker? You pay £1000, say, to a broker, pay an annual fee of maybe 0.2% and a small initial charge, and then you sit back and wait. If you're looking for growth, you reinvest your dividends, otherwise you use the income as you see fit.

You ve taken on equity risk to make returns less then cash returns - Is that a good investment OVER THE LONG TERM?

Over that time frame, clearly not, but (as pointed out by several people) the FTSE 100 is hardly the best index to track, nor should people be heavily invested in a single fund tracking a single sector (in this case UK large caps). On the other hand, someone investing in a more diversified portfolio over the last 10 years would probably be far exceeding cash returns.

ChloeRadshaw

Aegis wrote: »

It's not even close to properly diversified. The FTSE 100 is clustered into a small handful of sectors and is geographically restricted to pretty much only the UK in terms of where business is done. In contrast, my own diversified portolio contains funds dealing specifically with European companies, US larger companies, Emerging Markets (BRIC/EMEA), Global Equities, Natural Resources, Commodities, etc. Holding on to just a FTSE 100 tracker wouldn't even come close to getting me this level of diversification. Not to mention the fact that a savvy investor would realise that the companies making up the FTSE have for the most part saturated the market over the years, and between the largest companies in the same sector probably contain so much market share that the prospects for long term growth are low. As such, holding a FTSE 100 tracker is probably more likely to form part of an income strategy than a capital growth one, as dividends are likely to be higher with large caps.

How much financing does one need to do to hold a FTSE100 tracker? You pay £1000, say, to a broker, pay an annual fee of maybe 0.2% and a small initial charge, and then you sit back and wait. If you're looking for growth, you reinvest your dividends, otherwise you use the income as you see fit.

Over that time frame, clearly not, but (as pointed out by several people) the FTSE 100 is hardly the best index to track, nor should people be heavily invested in a single fund tracking a single sector (in this case UK large caps). On the other hand, someone investing in a more diversified portfolio over the last 10 years would probably be far exceeding cash returns.

Please do me a favor and quantify what IFAs mean when they 'Long Term?

If 10 years is not long term how many years is?

When I talk about ignoring the cost of financing - What I mean is the opportunity cost which is effectively Libor + spread the bank pays for deposits.

In any event with diversification across Japan, US, and UK indexes still not even closely matching plain cash returns how can anyone with a straight face still sing the whole Long Term song?

Aegis

ChloeRadshaw wrote: »

And one final thing.

use the Dow , Nikkei , and FTSE as an example

10 years ago : Nikkei at 35K - Its now 13K (Down about 60%)
FTSE100 - flat
Dow - marginal improvement

Am I missing something obvious here? is this not diversified?

We ve moved away from in it for the long term to diversification ?

Catching 3 sectors out of all the ones available in the world (i.e. Japan large caps, US large caps of a particular variety and UK large caps) is still not a good way to diversify.

However, just to emphasise how much different investing in those geographic locations could have been:

Fidelity American: 144.7% Growth
Invesco Perpetual Income: 169.0%
AXA Framlington Japan: 109.9%

All of those would be better than the returns from cash for 10 years, despite their underlying indices showing less growth than cash. Ok, I've cheated a bit by picking the best in class, but if you look at the figures for the last 10 years to see which ones beat the cash growth of about 79% (I've assumed constant growth at 6%: clearly overestimating and not accounting for the tax, which is more favourable for shares with most people, lower income tax on dividends than on interest and the ability to dispose of a fair amount of assets without incurring CGT).

purch

difficulty of actually liquidising your investment

Personally I'm more in favour of Liquidising the fingers of the 'adviser' who put the OP's investment in such a high risk environment.

earlgrey_3

ChloeRadshaw wrote: »

No - That you get qualified experienced IFA's saying in times of volatility - 'Dont worry about 20% swings if YOU ARE IN IT FOR THE LONG RUN;

This is nonsence - You need to have aggressive stop losses and forget this argument. Thats all I was trying to point out

I hear so many times dont worry its a long term investment without realizing that that argument does not stand up.

Quite so, or at least it's a very over-used sales line.

Those selling collective investments, whether tied agents or IFAs, do so for the commission they receive from the company. (Apart from the tiny number who are entirely fee-based.)

No sale, then no commision and their kids' school fees don't get paid. Therefore they will always persuade the client/punter that's it a great time to invest rather than be in cash regardless of the financial climate. Why should we expect anything else?

It's clear that many people are persuaded to underestimate the risks and overestimate the returns. Some with only a few thousand pounds have been encouraged on this board to put it into equities.

So people really need to be a little more realistic about how objective they can expect any "financial advisor" to be. When it's the companies they sell for that pay the commission, not the client, then as always, 'he who pays the piper calls the tune'.

Aegis

ChloeRadshaw wrote: »

Please do me a favor and quantify what IFAs mean when they 'Long Term?

If 10 years is not long term how many years is?

Pensions would be an example of long term planning. In my case, my pension isn't due to be cashed in for about 30-35 years. That's pretty long term. 5 years is generally considered short term for investments, so I guess that even medium term would be 10+ years on an investment timescale. Of course, it's all fairly subjective.

When I talk about ignoring the cost of financing - What I mean is the opportunity cost which is effectively Libor + spread the bank pays for deposits.

Something most investors/savers have no direct interaction with. Savers are effectively at the mercy of the banks when it comes to the actual rates on offer, so looking at LIBOR is pretty much a pointless exercise if you're trying to compare strategies for the man on the street. If you're going to compare the two, compare savings account rates with a typical investment portfolio and see which wins.

In any event with diversification across Japan, US, and UK indexes still not even closely matching plain cash returns how can anyone with a straight face still sing the whole Long Term song?

That's a total non sequitur (a fallacy of hasty generalisation, more specifically). Just because 3 indices fail to beat cash if you take them in isolation and ignore dividends doesn't mean that all sectors fail to beat cash, nor does it mean that a properly diversified (i.e. NOT large cap companies in just 3 countries) active portfolio won't beat cash. The funds I've quoted in my last post all returned significantly more than cash, probably double or more in each case, which is a totally different story to "not even closely matching plain cash returns" without even leaving the geographic sectors you cherry picked.

All in all, if you pick a nicely diversified portfolio rather than sticking to large caps from 3 fairly uninspiring geographic sectors, you'll see that over 10 years the investment portfolio beats cash in any case where the fund selection was well researched, where rebalancing happened on a fairly regular basis and where the dividends were reinvested.

Of course, all this is still compared to the massive over-estimate of cash returns that I came up with, using 6% on average without accounting for tax. If we knock income tax off that figure and go for 4.8% compounded, then we get a result of just 59% return on investment over 10 years, and for a very good interest rate over the entire savings period. Even a FTSE 100 tracker would perform close to that growth rate over that time, and it's a fairly poor investment as we've already discussed.

MYLITTLESISTERLOLA

kungfumaster wrote: »

Yes it was a large investment hence the heavy loss. Surely theadvisor should have advised us to spread our risk (even though we should have possibly known this ourselves).

So the million dollar question is, shall I withdraw the money until the dust settles a bit ( a year or so) then plough it back it or just leave it there and grin and bear it?

I will not offer any advice as your are thinking of suing the last person who did that !!!
I am sure you got all the appropriate documentation with the usual strapline of 'investments can got down as well as up', I am not making light of your situation but I would expect to take at least some responsibility for MY decision had I been in your position