Portfolios must be getting decimated.

StevieJ

GeorgeHowell wrote: »

As of this moment the FTSE 100 index is 30% below its all time high, nine years ago. The fall in real terms is obviously considerably more than 30%. Even allowing for dividends there is a fall. This surely destroys the myth that equity based investments are a sure fire hit if you wait long enough. Who knows when even the 1999 level will be reached, let alone a long-term gain. Same applies to real estate as an investment. Financial advisors always point people towards equities, because otherwise their services would not be required, be they independent or tied, commission or flat fee.

The Ftse is now paying a dividend yield of close on 5%, this obviously not guaranteed but most companies try at least hold the dividend. I am sure there are good and bad times to invest, I dare say that the best times to invest often appear to be the worst ( i.e. panic depression, recession, it's different this time).

GeorgeHowell

StevieJ wrote: »

The Ftse is now paying a dividend yield of close on 5%, this obviously not guaranteed but most companies try at least hold the dividend. I am sure there are good and bad times to invest, I dare say that the best times to invest often appear to be the worst ( i.e. panic depression, recession, it's different this time).

Certainly the contrarian approach would have it that way, and I have a deal of sympathy with that approach.

Nevertheless would someone who had bought into say a FTSE 100 tracker fund when the index was at its peak in 1999, and stayed with it, be better off today overall than if they had been playing the cash alternatives over that period -- ie moving money sensibly to get optimum rates ? I rather doubt it. Regardless of today's immediate problems I don't think we've seen such a prolonged stock market bear period for a very long time -- nine years in effect. Yes, it is still possible to make some money by jumping in and out at the right times. But most ordinary people do not have the savvy or the good luck to get that right most of the time. The school of thought that says we are still better off to put the majority of our funds in equities and that will maximise our overall gain for our dotage when we either need the money (for our long term care ?!) or are in a position to leave it to someone, is in my view based on a highly dubious premise, in the light of the experience of the past nine years.

I'm not saying that people should not buy into equities. But they need to so so with their eyes fully open.

Oblivion

GeorgeHowell wrote: »

I'm not saying that people should not buy into equities. But they need to so so with their eyes fully open.

I agree with that view George. In these uncertain times, anyone with spare cash to put away needs to be especially careful where they put it. The investment market is a roller coaster at the moment because the trust has evaporated. Simple savings accounts with trusted organisations is the way to go I think, until this maelstrom passes.

Dave.

ed123_2

.....they always say investing in equities is for the long term, but we are now back to 1999 levels, as the saying goes in the long term we're all dead....I also like the saying.."never invest more than you can afford to lose"....I don't know about you but I can't afford to lose any money....

StevieJ

GeorgeHowell wrote: »

Certainly the contrarian approach would have it that way, and I have a deal of sympathy with that approach.

Nevertheless would someone who had bought into say a FTSE 100 tracker fund when the index was at its peak in 1999, and stayed with it, be better off today overall than if they had been playing the cash alternatives over that period -- ie moving money sensibly to get optimum rates ? I rather doubt it. Regardless of today's immediate problems I don't think we've seen such a prolonged stock market bear period for a very long time -- nine years in effect. Yes, it is still possible to make some money by jumping in and out at the right times. But most ordinary people do not have the savvy or the good luck to get that right most of the time. The school of thought that says we are still better off to put the majority of our funds in equities and that will maximise our overall gain for our dotage when we either need the money (for our long term care ?!) or are in a position to leave it to someone, is in my view based on a highly dubious premise, in the light of the experience of the past nine years.

I'm not saying that people should not buy into equities. But they need to so so with their eyes fully open.

The point I was trying to make is that investors could invest in the Ftse today, that index remain at the same level for the next 10 years and it would still almost certainly beat cash because of the dividend yield. There are good times to buy and bad times 1999-2000 at the top of the tech bubble = bad, 2008 after major market crashes good IMHO.
According to Bloomberg record withdrawals from Mutual funds this week, this is a classic sign of a market bottom, as general investors are very scared and flee to cash, whilst the Pro's like Buffett are starting to move the other way.

dunstonh

Nevertheless would someone who had bought into say a FTSE 100 tracker fund when the index was at its peak in 1999, and stayed with it, be better off today overall than if they had been playing the cash alternatives over that period -- ie moving money sensibly to get optimum rates ? I rather doubt it.

Thats the FTSE100 though. As has been mentioned before. It hasnt been a good index for around 15 years now. If you put all your eggs in that basket then you deserve those lacklustre returns (as you should with any single fund investing).

There is more to investing than picking the FTSE100.

GeorgeHowell

StevieJ wrote: »

The point I was trying to make is that investors could invest in the Ftse today, that index remain at the same level for the next 10 years and it would still almost certainly beat cash because of the dividend yield. There are good times to buy and bad times 1999-2000 at the top of the tech bubble = bad, 2008 after major market crashes good IMHO.

That's fair comment, and describes a plausible scenario, although of course there are many plausible scenarios, both favourable and unfavourable to the investor.

For people with enough funds to take a bit of risk with some of it then I would not argue with putting a portion into equities. I do however take issue with the frequently seen advice that equities should form the considerable majority of a portfolio, for almost all investors. For example, take someone living on a meagre pension which just about pays the bills, but who has, say, £150,000 saved/invested. The interest from this, plus drawing of a small amount of the capital each year for a holday gives them a tolerably comfortable lifestyle. I suspect that some professional advice would have them put a large slug of this into equity funds, on the basis that it would at least inflation proof the capital whilst providing an income. Such advice may recommend that 50% or more of this sum be so invested. I would take issue with that and would argue that such people should not put more than 10% of their available sum into equities, and only then if they have a fairly relaxed attitude to risk. I doubt that many professional advisors would agree with my view, but I think this is an important issue, worth debating in the current financial and economic climate.

dunstonh

I do however take issue with the frequently seen advice that equities should form the considerable majority of a portfolio, for almost all investors.

I can see where you get the impression but it doesnt really reflect reality. The FOS consider that the average consumer is cautious. So, taking that average person, that would rule out 100% stockmarket investment on advice cases. (the exception may be regular payments to some degree). Risk profiling nowadays has moved on a lot in recent years from the old pick a number between 1 and 5 and the consumer picking the one in the middle.

Looking back historically, the most "sold" funds across the board were with profits funds or balanced managed funds. Both of which were not 100% stockmarket. With profits is largely obsolete nowadays (Pru and NU exceptions). Balance managed is still popular but even that would be above the typical risk profile of Mr Average.

The NPSS coming in 2012 is possibly case of what you are saying though. I listed on radio last year to (IIRC) Lord Turner and the proposals for investment options on the NPSS. He was saying that they will keep it simple and there would be a FTSE tracker and a cash fund for those coming up close to retirement. So, in theory, that would mean that Mr Average using the NPSS would be investing above their risk profile in a Govt scheme.

I would take issue with that and would argue that such people should not put more than 10% of their available sum into equities,

It is important not to impose your personal risk profile on to others. Doesnt matter if you are low or high. What matters is that that individual is. That said, what you say happens. I tend to sector allocation or high yield as investment strategies but for low experience clients at the cautious end I also have portfolios built on equity exposure limited to 10,20 or 30%. I know (from meetings we have) that other IFAs have similar sorts of things as well. Again, this probably comes about more nowadays due to improved risk profiling and a requirement to use investment options that are withing the understanding of the individual.

GeorgeHowell

dunstonh wrote: »

It is important not to impose your personal risk profile on to others. Doesnt matter if you are low or high. What matters is that that individual is. That said, what you say happens. I tend to sector allocation or high yield as investment strategies but for low experience clients at the cautious end I also have portfolios built on equity exposure limited to 10,20 or 30%. I know (from meetings we have) that other IFAs have similar sorts of things as well. Again, this probably comes about more nowadays due to improved risk profiling and a requirement to use investment options that are withing the understanding of the individual.

I don't think it's a question of imposing my personal risk profile. The example that I quoted above was purely for the purpose of illustration, and in fact bears no relation to my own situation. But I don't think that such a person as I describe should be more than about 10% in equities, regardless of their own attitude to risk. Nevertheless when I see articles in the press showing the recommendations of various high-profile portfolio managers as to how six-figure amounts should be distributed, they most often advise substantially higher proportions in equities, even for low risk preferring/retired customers. The problem seems to me not just to be over-simplistic or inappropriate risk profiling of investors, but over-simplistic and inappropriate risk profiling of various types of investment, especially equities. It is mandatory to couch advertisements etc with a health warning about past performance not necessarily representing future prospects. But this is most frequently associated with an an argument which examines equity values compared with cash, bonds etc over the last n years, arguing that if you hang on long enough then you must end up ahead of the game.

Is this true? Based on the past, yes. Based on the obvious fact that world is changing, not necessarily.

1echidna

What rankles with me is the language sometimes used in promoting a particular investment. How often does one hear that that so and so fund 'is' a good performer when what is really meant is that so and so fund 'has been' a good performer. Small thing perhaps but something that is of psychological importance in dragging people into investing when perhaps they would not otherwise do so.