Investment expectations

ReportInvestor

Here's a MorningStar definition to help investors who may be getting confused by all this toing and froing.

Average Annual Total Return
Average annual total return is a hypothetical rate of return that, if achieved annually, would have produced the same cumulative total return if performance had been constant over the entire period. Average annual total returns smooth out variation in performance; they are not the same as actual year-by-year results.

ReportInvestor

Fidelity Freedom Income Fund

Actual Values as of 11/2006
Date	        Value [of £10K invested at the start of November 1996] 
12/31/1996 	10,179.60 	 
12/31/1997 	11,290.08 	 
12/31/1998 	12,543.67 	 
12/31/1999 	13,446.14 	 
12/31/2000 	14,290.26 	 
12/31/2001 	14,607.10 	 
12/31/2002 	14,569.17 	 
12/31/2003 	15,636.67 	 
12/31/2004 	16,244.52 	 
12/31/2005 	16,858.18 	 
10/31/2006 	17,703.03

= 5.85% average over ten years thanks to compounding.

tom188

Cumulative rate of return means return compounded year on year.

tom188

No, the first row quotes the first two months return

"Value [of £10K invested at the start of November 1996]"
12/31/1996 10,179.60 = 2 months return

ReportInvestor

You don't give up a hopeless cause easily, do you?

1996 is the performance from 1Nov96 to 31Dec96 (under 2% growth which should have alerted you)
2006 is the performance from 1Jan06 to 31Oct06

So - back to ten years. Agreed?

dunstonh

The figures I posted were supplied by Financial Express Analytics and copied and pasted. The annual figure clearly states average. It does not say Cumulative. It is possible to see figures in both cumulative average and straight average. Some factsheets show figures in multiple ways. As long as you dont pass one figure off as the other then there isnt a problem.

I just fired up the software which uses Lipper and that shows both straight line average and cumulative average. For reference, I use the ACR but that data wasnt available on the Financial Express source.

DH, from your response does it translate into 'After 5 years my £30k is now £45.87K' ?
Also, forgetting tax for a minute, if I put it in a savings account and get 5%pa will that be £38.29K after 5 years?

The figures include tax as they are unit trusts/oeics (ISA would be a little higher). They are past performance figures and past performance is no guide to future returns. The point of interest is really that those are sector average only and that period includes a stockmarket crash. Future figures could be higher or could be lower.

tom188

Actual value after 10 years:£17,703.03
Start value £10,000
Amount Gained: £7,703.03
% gained =77.0303% (AG/SV)
Annualised rate = (1+%Gained)^(1/amount of years)
=1.770303^(1/10)
=1.058777639
=5.88% p.a. annualised 10 year return.
Fidelity quote a figure of 5.85%, with the difference made up from rounding errors or inconsistencies in data.

tom188

Their 10 year annual return quoted gives a 10 year total return of
10000*1.0585^10=£17656.66 against a return in their example of £17,703.03.

Differences are marginal, and I would imagine theyve done the example using slightly different bid/sell prices, or used different sources for their figures.

17656.66/17703.03 = 0.0026 = 0.26% so this is a marginal difference.

Seems sloppy though.

ReportInvestor

prudryden wrote:

if your figures are correct, why does the fund snapshot say themselves that their average 10 year annual return is 5.85%? [RI - against a total return of 77%]

:banging head against a brick wall :

Pru. At a basic level I suggest you take your calculator/spreadsheet - enter in 100 - then times it by 1.0585 10 times and you should start to get the picture :rolleyes:.

tom188

talking of sloppy i should have put those figures in dollars and not sterling.