Interest rates so low - don't bother saving!

pqrdef

jimjames wrote: »

I don't agree that it is gambling. To me gambling is like doing the lottery or horses with the likelihood of losing 100% but a small chance of winning back. Done correctly, an investment portfolio will not lose 100%

If you diversify enough, you can near-guarantee that the gains will cancel out the losses. Or to put it another way, the losses will cancel out the gains.

In fact, anybody whose investments do well might be said to have been insufficiently diversified.

Can't have it all ways.

JohnRo

pqrdef wrote: »

If you diversify enough, you can near-guarantee that the gains will cancel out the losses. Or to put it another way, the losses will cancel out the gains.

In fact, anybody whose investments do well might be said to have been insufficiently diversified.

Can't have it all ways.

But surely the lower boundary in a great many trackers of the major indices is not anything remotely close to zero (in terms of company performance) while the upper boundary is unlimited.

Many indices track a slice of a particular market where poor performers are dropped and replaced with companies on the up so the drag is curtailed somewhat?

coastline

gadgetmind wrote: »

Why 2%? The FTSE is currently yielding 3.6% and fees for a tracker can be got well below 0.5%, and sub 0.25% is pretty easy.

And (of course) the world consists of more than the FTSE and a balanced global portfolio does even better. Throw in some bonds and balancing between different asset types (including cash!) and it gets even more rosy.

I've been investing in equities for three decades, and it's been a wild ride at times, but the long-term results are most pleasing.

I'm guessing the site uses the Ftse as a comparison because people will be familiar with it...although experienced investors know theres other worldwide sectors.
2% dividend ..again a guess...sounds fair when you take off a management fee of 1.5%.Trackers are a new idea and the site runs back to 1962 so its likely the All-Share or Top30 has been used pre 1984.
Thing is theres not many comparison sites online...well going back decades...if anyone has any please post them up.
Even using the Ftse its shows long term you are better off in equities...although the last decade or so hasn't been too good.
Think the guy is an accountant..??

http://swanlowpark.co.uk/about.jsp

Linton

pqrdef wrote: »

What makes you think there'll be a high underlying upward trend? Please don't quote historic figures, just tell m where you bought your crystal ball.

It's true that the quoted risk measures, beloved of IFAs, are really only measures of volatility. But volatility isn't the only risk factor. Sometimes an investment that isn't particularly volatile turns out to be a turkey. Then they say it was mis-sold as low-risk. I wonder what they'll say when gilts crash.

If there arent a preponderance of long term upward trends in the world given the increasing population and development of the previously non-industrialised nations nothing is safe. Global capitalism depends on it.

There have been disastrous turkey funds, but fairly few. And the ones there have been have tended to be small and opaque regarding their investments. Buying a clearly defined sector fund is pretty safe from complete turkeys. Even if you catch a turkey any one fund is only a small percentage of a sensible portfolio and so doesnt matter a lot overall.

Unless the UK economy crashes catastrophically gilts wont "crash" in any real sense, they will revert to around par. Say a drop of 30% or so at most, guaranteed by their redemption at par on maturity. Enough of a drop to worry an investor but in no sense a crash. And if the UK economy crashes many other bets are off.

On to history...
Of course nothing is guaranteed but it is a general principle in life that one bases one's choices on past experience. You act on the basis that the sun will rise in the morning. You turn on a tap without worrying too much whether water will come out. You assume that your employer will continue to pay your wages. etc etc. The returns from investments have greatly exceeded anything I could have got from cash savings for the past 25 years I have been investing despite 3 major share crashes. And with diversification covering much safer assets including cash I am not concerned about the next one.

roswell

Trackers / non trackers become a mute point anyone putting everything ina single basket either has prior knowledge that its going to increase or extremely risky.

A tracker as part of any "Plan" is in my mind a must though because of the low costs and lack of managment on your own part its a very good foundation before straying out into trying to beat it atleast it gives you a base line.

As with any investment its the homework you put in that decides your rewards so logicaly very few would go for a ftse 100 tracker and those that do have probably made that choice based on the stratagy they want to follow.

its not going to be impossible to beat the any index in a given year but over 50 years its going to be harder and harder to beat it than to simply track it and use other assets to add tot he total pot(effectively beating it)

grey_gym_sock

pqrdef wrote: »

Like what? Inflation affects everybody. It means your real return is less than your nominal return, whether you're in oil ptrospectors or building societies.

most obviously, cash has more shortfall risk. this is if we are looking at the very long term, e.g. 20+ years.

on the that sort of timescale, the range of possible outcomes from investing is huge. but the chances that investing will do worse the cash savings becomes smaller over time.

in much shorter terms, the probability that investments will beat savings is much more finely balanced. get your market timing ever so slightly wrong, and investments can easily do worse.

in the short term, volatility makes investments unattractive (to most ppl). in the longer term, higher expected returns swamp volatility.

there is a kind of built-in inflation proofing in any investment in real assets, and equities (excluding cash shells) do mostly represent real assets. but the shortfall risk is probably more important.

grey_gym_sock

pqrdef wrote: »

What makes you think there'll be a high underlying upward trend? Please don't quote historic figures, just tell m where you bought your crystal ball.

as well as history, you can ask what you would theoretically expect to happen under a capitalist system, in which it is possible to own a business, and the owners get part of what the business makes (the workers getting the rest).

or what would happen if you own land and buildings, and can charge other ppl for their use.

talk about higher return for higher risk is not always true. but the basic point that, if you take the residual risk from a business (by owning equity, or real estate), you'd generally expect a higher return than if you insist on being paid a known interest rate, is perfectly valid.

ultimately, cash deposits are all (except when there is unsustainable financial chicanery going on) being lent out to businesses (or landowners), who will share some of the profits from their business with you (as interest) in return for supplying part of the capital they need to employ. but since they take the residual risk - they agree to pay your interest even if their business falls apart - they are going to (try to) set the interest rate low enough that your return on capital is lower than theirs.

le_loup

pqrdef wrote: »

RPI-adjusted Footsie is down by a third from 1999.

Excluding dividends!

atush

Indeed. They (the cash only savers) always forget the income.

The only sensible approach is to have cash, equities and other assets. In the 'old' days they always said to move to cash- as you were forced to buy an annuity. Now that you no longer are, there is no longer a reason to move to 100% cash in the run up to retirement.

gadgetmind

le_loup wrote: »

Excluding dividends!

Yup, and it's also like saying that house prices are down 20% from their peak. Maybe they are, but I wasn't so daft as to be buying at the peak so said peak means close to zero to me.