Interest rates so low - don't bother saving!

Glen_Clark

gadgetmind wrote: »

Here is the FTSE versus the FTSE Total Return on a few dates.

Dec20 1999, FTSE 100=6930, FTSE 100 TR=3141
Jan30 2006, FTSE 100=5780, FTSE 100 TR=3141
Aug17 2012, FTSE 100=5852, FTSE 100 TR=4077
Dec19 2012, FTSE 100=5972, FTSE 100 TR=4198 (current live!)

OK, so 33% in 12 years is still lagging inflation, but who invested everything on just one day in 1999?

How does that take into account those which have dropped out of the FTSE 100 since 1999?

gadgetmind

Glen_Clark wrote: »

How does that take into account those which have dropped out of the FTSE 100 since 1999?

Yup, it's the indexes, so when a share leaves the FTSE 100 it gets dropped. The Total Return version is pretty much what a FTSE 100 accumulation tracker should have delivered, but you need to allow for fees and tracking error.

It's always seemed odd that someone would discuss FTSE return while ignoring dividends, These are currently 3.6% for the 100 so it's like looking at the returns from a bank account while ignoring 3.6% pa interest.

Those who do this generally have a point to prove IME.

marathon_man_3

gadgetmind wrote: »

And at that time you were concerned about "shrinking valuations"?

Yes - the funds we were in at the time weren't doing well and I was close to the date that I wanted to retire. There was no certainty that the funds would improve just as there was no knowledge that rates would plummet.
As I wrote before, I am happy to be totally in cash now that we are in our retirement years. I am just bemoaning the rates available.

moneyfoolish

le_loup wrote: »

Shows a basic lack of understanding.
Interest rates were higher a year or two back ... but so was inflation.
You are taking more risks with cash than you could be by having a diversified portfolio.
My mixture of income funds and bond funds, have this year made from 10.4% to 32.2%. I also have some cash in fixed rate savings and that has made 3.9% in 2012. All before 2.7% inflation.
I know which return I prefer.

And those same income funds around 4 years ago would have gone down a huge amount (because I checked and they ALL did) which is not what people who are in retirement can afford to happen. A couple of bad years together and they can almost be wiped out. Any financial advice I've ever seen (and all Pension funds under administration) recommends moving money from equities to bonds and then to cash as retirement approaches.

Glen_Clark

gadgetmind wrote: »

Yup, it's the indexes, so when a share leaves the FTSE 100 it gets dropped. The Total Return version is pretty much what a FTSE 100 accumulation tracker should have delivered, but you need to allow for fees and tracking error.

So, either way, those returns would not be achieved. If you had kept the same FTSE 100 shares, those like Dixons and the Dot Coms that tanked would have dragged the returns down considerably. If you had bought a tracker you would be liable for dealing fees and charges.- at least 10% if buying holding then selling?

gadgetmind wrote: »

It's always seemed odd that someone would discuss FTSE return while ignoring dividends, These are currently 3.6% for the 100 so it's like looking at the returns from a bank account while ignoring 3.6% pa interest.

The dividends you would have got from them in another complication. Unless you have a tracker you have actually invested in over that period I don't see how you can know the return.

jimjames

gadgetmind wrote: »

It's always seemed odd that someone would discuss FTSE return while ignoring dividends, These are currently 3.6% for the 100 so it's like looking at the returns from a bank account while ignoring 3.6% pa interest.

Those who do this generally have a point to prove IME.

Absolutely. It is easy to say that the FTSE is below a specific date in 1999 but unless you put everything in on that date then its irrelevant and also with dividends you would still be up.

jimjames

Glen_Clark wrote: »

So, either way, those returns would not be achieved. If you had kept the same FTSE 100 shares, those like Dixons and the Dot Coms that tanked would have dragged the returns down considerably. If you had bought a tracker you would be liable for dealing fees and charges.- at least 10% holding for the 13 years?

But a tracker doesn't keep those shares. It does exactly what you expect and tracks the index. If a share drops out of the index then a tracker sells it, if a new shares is added it buys it.

I'm not sure what you are suggesting? The return from a FTSE tracker is the same as the return from the FTSE minus charges - it has no bearing what shares were in or out over that time.

If the charges are 0.3% then it brings the dividend return down to 3.3%.

I can't find any of my tracker records going back to 1999 but from 2000, the Fidelity AS tracker has gone from 45p per unit to 68p now. That return includes dividends but not tax credits up to 2004.

By my calculations that is a return of 3.6% pa through one of the worst stock market periods and with the FTSE still lower than it was at the start. Yet the return is still positive with a total return of over 50% and many other markets substantially higher than this.

markwilkinson

I don't post much on this board but this savings section is pretty much the only one I read regularly - I check it numerous times daily :rotfl:

I think savings still have their place and I'm still squirrelling away, despite the crappy interest rates. I also think, if you can afford it and are comfortable with the risks then some form of stock market investment is a good idea. Having had my fingers burnt in that past I avoid structured products and prefer to hold a share direct, if it goes wrong I only have myself to blame!

jimjames

markwilkinson wrote: »

Having had my fingers burnt in that past I avoid structured products and prefer to hold a share direct, if it goes wrong I only have myself to blame!

There is a very interesting article in Which magazine this month about structured products. The overall view is that they are generally very poor value and most return less than the equivalent savings over most time periods surveyed.

Glen_Clark

jimjames wrote: »

But a tracker doesn't keep those shares. It does exactly what you expect and tracks the index. If a share drops out of the index then a tracker sells it, if a new shares is added it buys it.

I'm not sure what you are suggesting? The return from a FTSE tracker is the same as the return from the FTSE minus charges - it has no bearing what shares were in or out over that time.

If the charges are 0.3% then it brings the dividend return down to 3.3%.

Yes I appreciate what you are saying. I was just pointing out that either way you would not go from 6930 to 5972 over those 13 years. If you kept the same shares you would have lost out on those which fell out of the index. If you bought a tracker you would have paid dealing charges. Either way your share price index would be lower.
I would also doubt the TOTAL charges, including all the buying and selling, to be as low as 0.3% pa. But even 0.3% every 13 years would be about 4% off the final figure.