Worth seeing an IFA?

westy22

I agree with Jegersmart - I think the old adage 'its not timing but time in the market that counts' should be consigned to history.

Jegersmart

To illustrate this point, there are around 508 OEICS and UT's that have a UK Equity remit according to Trustnet. If you had picked any fund in the top *450* you would have made at least 7.2% return in a year after fees. If you had picked the worst of the top 150 funds you would have made at least 16%. Is one year long term?

dunstonh

westy22 wrote: »

I agree with Jegersmart - I think the old adage 'its not timing but time in the market that counts' should be consigned to history.

Research has found that timing only equates to under 5% of total return.

The problem with timing is that you cannot know when the right time is to be in or out. You may get it right sometime but you will get it wrong others and that will largely cancel out or end up worse than being invested throughout.

You also have to remember that the average UK consumer is a complete novice at investing. You cannot expect them to know enough to even consider trying to time the markets. Chances are they would do the complete opposite of what is needed.

Hence, why you have the length of time guidance.

Also, in this case, the OP mentioned regular contributions. You need time with those. 5 years is not good enough.

To illustrate this point, there are around 508 OEICS and UT's that have a UK Equity remit according to Trustnet. If you had picked any fund in the top *450* you would have made at least 7.2% return in a year after fees. If you had picked the worst of the top 150 funds you would have made at least 16%. Is one year long term?

So, a few years ago you lost 30% in a year. You cant just pick good years in isolation. You have to include the bad years and the years where you get nothing and then average them out.

Jegersmart

dunstonh wrote: »

So, a few years ago you lost 30% in a year. You cant just pick good years in isolation. You have to include the bad years and the years where you get nothing and then average them out.

Some points well made - and the 30% loss is also valid. I only picked the last year to show that equities is not necessarily *only* a long term play. In fact had you invested in pretty much any UK equity fund after the fear had gone in late 2008 or early 2009 the gains would have been far greater. I think the point we agree on is that no one can pick the absolute tops and bottoms but we can be pro-active in managing our equities exposure. Of course the average consumer is pretty clueless - just like I am in other areas and that is why I always recommend getting into a fund where you pay a manager to do this for you rather than a cheap tracker. Marlborough Special Situations is a good example, 2006 +24.35%, 2007 +6.45%, 2008 -37.98%, 2009 +51.82%, 2010 +42.35% and 2011 to date +9.58%. In fact it has only had one down year since 2004 which was indeed 2008. With a tracker fund based on an approximate buy-in at 4400 (FTSE100 value @early 2004) you would have made approx. 35% maximum in the same period (minus fees). The Marlborough fund made 152% after fees.

I know hindsight is wonderful (I was in bonds for the last 3.5 years and made "only" 12.xx% per year for htose and even more before that) but the point is that if you do research and choose funds that are good at limiting downside at least historically you have a fairly good chance of choosing a fund that will outperform significantly - but not in certain 1 year periods of course - all I am saying is that telling people that 15 years is the minimum can be utter crap - but it does take some common sense to invest in equities and most other instruments and I wouldn't do so without doing some work myself. I still feel very strongly for the guy who was advised to invest in a FTSE tracker 14 years ago......

imho, dyor.

westy22

Research has found that timing only equates to under 5% of total return.

The problem with timing is that you cannot know when the right time is to be in or out. You may get it right sometime but you will get it wrong others and that will largely cancel out or end up worse than being invested throughout.

I don't disagree with you - I am not a great advocate of trying to 'time' the market either. The point I was trying to make is that 'time in the market' alone does not make everything rosy. The received wisdom is that, historically, if you allow enough time all the 'bads' will come good eventually.

This may have been true in the past but I believe that today is very different to even 20 years ago, let alone 50 years ago. Market information, even from the most far-flung parts of the world, is almost instantaneous and markets tend to move as one. Therefore, if you are on a platform that allows free (or very low cost) and speedy switching it can be profitable to move in and out of specific sectors or funds on a fairly regular basis and try to 'catch the waves'.

dunstonh

The point I was trying to make is that 'time in the market' alone does not make everything rosy.

True. Problem is that what do you replace it with?

Remember that that "guideline" is effectively for the inexperienced investor and statistically, the longer they are invested, the less likely there will be a loss.

This may have been true in the past but I believe that today is very different to even 20 years ago, let alone 50 years ago. Market information, even from the most far-flung parts of the world, is almost instantaneous and markets tend to move as one. Therefore, if you are on a platform that allows free (or very low cost) and speedy switching it can be profitable to move in and out of specific sectors or funds on a fairly regular basis and try to 'catch the waves'.

All very true. However, from an advice point of view, an adviser cannot make such changes off the cuff like that. A novice investor wont know what to do and that just leaves the more experienced investor (a category that really isnt catered for in FSA regulation) who just has to ignore "guidelines" aimed at the inexperienced.

almondsalty

There is always the DIY option through fund supermarkets and online execution only brokers. If you are young, and have the time to do plenty of research you may like to take the DIY route. But if you are not confident, then don't bother.

And based on your monthly allowance pound cost average is definitely something you should look at http://www.investoo.co.uk/tips/investing-for-beginners/monthly-investing-vs-lump-sum-investing/

That will allow you to get more for your money when investing on a monthly basis, so long as you know what you are doing of course!

fairleads

jamesd wrote: »

For £5,000 initial and £6,000 a year you might pay an IFA 3% initially plus 0.5% of the fund value each year for selecting and adjusting the investments within a stocks and shares ISA. That would be:

Start: £150
Year 1: £55
Year 2: £85
Year 3: £115
Year 10: £326 on £65,000 invested

That ignores investment growth and increasing contribution levels. Even medium risk investments should be making 7% plus inflation. You wouldn't necessarily expect much other than rebalancing initially from the IFA after the initial setup work because the amounts are low enough for it not to be worthwhile for you or the IFA. That would (should) change over time. Or you could pay a fee instead of commission and get it done whenever you like.

If you got 7% less 0.5% fees in investment returns you'd have £96,064 after ten years instead of £65,000. 7.5% is conservative, 7-9% plus inflation is more like it. At 9% minus 0.5% fees, ignoring inflation, at ten years you'd have £108,379 and you'd have paid £2,749 in annual IFA commission over the ten years.

If you got 3% in savings with no fee you'd have £77,566 after ten years.

The ongoing 0.5% is what HL takes without providing any advice for the money.

James, you forgot to include the amc in your calculations.

fairleads

jamesd wrote: »

I didn't forget to include the AMC. The returns used are after fund charges, as normal when quoting fund returns, except the commission paid to the adviser portion that I split out so I could report it.

I didn't split out the charges on the savings account either, just reported the interest paid to the customer.

In that case your calculations are misleading.

gadgetmind

dunstonh wrote: »

You also have to remember that the average UK consumer is a complete novice at investing. You cannot expect them to know enough to even consider trying to time the markets. Chances are they would do the complete opposite of what is needed.

I was speaking to a couple recently who said, "Oh, we tried the stock market, but one day we checked our investments - and we're glad we did - and 30% of the money had gone! Well, we got the rest out as quick as a flash, and we won't be "investing" there again!"

I've seen similar from a whole load of people on this site.

Equities *aren't* for everyone, at least not unless it's for a longer time period, and ideally in a wrapper where they can't meddle around and !!!! it up.

Yes, I do try to look at trends and adjust my asset allocation, I do try to minimise losses and pick the winners, and I do like to think that this is better than doing nothing. But *no way* would I use equities as a way of investing for a specific thing (house deposit?) in five years time as it's just not a large enough time scale.