Financial Industry think their clients are "muppets"?

MrMalkin

DiggerUK wrote: »

My opinion, is that it's a long term investment, that ticks all the boxes for security of returning what you put in, with a bit on top.

And as I've already said, if your 'long term' goals are simply to secure the value of your investments, then your goals are badly thought out. Over the long-term, the risks of the volatility of stocks and bonds fades, but the shortfall risk potential of an oversize gold investment becomes greater. The 'bit on top' is miniscule.

The point of emphasising the income from stocks and bonds is that over the long term, the price swings of those asset classes becomes largely irrelevant. What really matters is the income - that's what powers most of the return. The fact that gold provides no income is the reason why its returns are so poor.

GeorgeHowell

MrMalkin wrote: »

And you missed the point. If IFAs say that sort of thing about creating portfolios then they are quite correct in doing so. Whether or not an investor needs to go to an IFA to get that advice depends on the investor's preference.


They didn't have to wait very long. A simple buy and hold strategy over the last 12-13 years would have produced a positive real return if only due to the dividends from stocks. A slightly more complicated asset allocation including bonds with some rebalancing and regular investment would have been higher still.

You need to stop paying attention to bare FTSE (or other index) numbers, and include re-invested dividends and other portfolio strategies if you're going to get a good idea of how good an investment stocks are. For example, looking at the FTSE All-Share, an investor starting in 1999 would still have a positive nominal return even at the market bottom in 2008 due to the power of dividends and compounding interest.

http://www.bestinvest.co.uk/article/7672/The-Power-of-Dividends

Gold, on the other hand, produces no income to help temper downswings.

I'm not necessarily supporting gold -- that's just as risky as any non-cash investment.

Would a buy and hold strategy based on a FTSE 100 tracker with reinvested dividends since the 1999 peak beat putting the money into rolling cash fixed rate/term bonds over the same period ? I don't know thew answer but even if they were neck and neck the cash strategy carries no risk as long as FSCS limits are adhered to.

In terms of missing the point, my point is that IFAs are not necessarily right in promoting that kind of strategy, which is routinely described by IFAs as a fundamental truth so profound that to refute it makes one equivalent to a flat-earther. IFAs promote strategies that make a lot of people think that they need IFAs -- ie complex ones. IFAs can't afford to tell people the realities : that the 'equities are best' myth is a busted flush, and that unless they really want to gamble they might as well put most of their money their money into the best available long-term accounts and them move it around periodically as rates change. Because if they did say that the vast majority of people would conclude that they could do it themselves using savings comparison sites, and that they don't need IFAs.

MrMalkin

GeorgeHowell wrote: »

Would a buy and hold strategy based on a FTSE 100 tracker with reinvested dividends since the 1999 peak beat putting the money into rolling cash fixed rate/term bonds over the same period ? I don't know thew answer but even if they were neck and neck the cash strategy carries no risk as long as FSCS limits are adhered to.

Buy and hold may not have beaten cash or bonds. But they way to look at the last 13 years of the FTSE is that it's been an unparalleled time to load up on cheap shares. If the market starts to turn to a bull market, you've got a huge portfolio built up ready to take advantage. This doesn't really work with cash because there's unlikely to be a sudden switch to bank accounts paying the same sort of rates that surging equities can.

GeorgeHowell wrote: »

that the 'equities are best' myth is a busted flush

There's a famous article published in 1979 called the 'Death of Equities'. The 70s were a terrible market for stocks, making very little or no headway. Almost immediately after it was written stocks experienced a 20 year bull market with returns averaging getting on for 20%.

Now I'm not saying that history will repeat itself, but long bear markets are very often followed by long bull markets. The bear markets are the best time to buy, and the longer they are the more you can buy, at rock bottom prices.

DavidLaGuardia

GeorgeHowell wrote: »

Would a buy and hold strategy based on a FTSE 100 tracker with reinvested dividends since the 1999 peak beat putting the money into rolling cash fixed rate/term bonds over the same period ? I don't know thew answer but even if they were neck and neck the cash strategy carries no risk as long as FSCS limits are adhered to.

This shows the perils of not diversifying. The FTSE 100 is not just 100 companies it is also weighted among relatively few companies and the make up of those companies has changed since 1999
Since it peak on Dec 30 1999 the returns have been as follows:
FTSE 100: 25.62%
FTSE Allshare:38.07%
More likely scenario: UK bias plus World Wide portfolio (using passive funds) all in 100% share funds. After fund charges: at least 95% or an annual 5.64% before any IFA charge. Pretty ok for the "worst" period of this length in most peopl'e investment lifetime

GeorgeHowell wrote: »

the 'equities are best' myth is a busted flush, and that unless they really want to gamble they might as well put most of their money their money into the best available long-term accounts and them move it around periodically as rates change. .

Except the fundamental flaw of this logic is that, if the process of capitalism fails in the long term (and nobody yet has found a better workable system) then there would not be those willing to 'rent' the money of others by paying any interest on cash. This is precisely why cash fails to generate what investment in business does against inflation. The investment in individual businesses may fail, but investing across the whole system is different. Commodities such as gold can be a much greater gamble.

Everyone raves on about house prices over the last 25 years and even the FTSE All Share has returned three times this amount in total - not entirely fair as you also get the benefit of living in your house, but it's a truth that still surprises some people.