Interest rates so low - don't bother saving!

Glen_Clark

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.

Isn't it also odd that someone would discuss FTSE return whilst ignoring fund and dealing charges

pqrdef

atush wrote: »

There are all kinds of RISK, and investment risk is just one of many. To be SO afraid of that, that you disregard all other risks (from inflation to shortfall) is just plain unwise if not perhaps ignorant.

Other risks we are stuck with anyway, and there's nothing we can do about it. Investment risk is an extra.

And it's quite wrong to imply, as people usually do, that bigger risks lead to better returns. They can easily lead to worse returns, That's what risk means.

Investment risk is basically gambling with your savings. If people want to, fine. But I'm not buying the idea that people should have to, or that they're stupid if they don't.

grey_gym_sock

investments have different risks from savings. when you add 1 kind of risk (e.g investment risk), you may be taking away other kinds of risk. depending on timescale, aims, etc.

it's true that higher risk doesn't always lead to higher returns. it also doesn't always lead to higher expected returns. e.g. if you fail to diversify properly, you increase the risk, but don't necessarily increase the expected return. something for ppl attracted by obscure or novel investments to consider.

investment is gambling, if you like. but gambling can be sensible, e.g. if you own the casino.

le_loup

russell_anderson wrote: »

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.

Like others, you are ignoring the income I receive from them, around 4.9%. Compared to bank interest a very good deal. And capital appreciation.
For example, one of my holdings is Invesco Perpetual High Income; held since 2002; now worth 63% more than I paid and giving me a yield of 5.9% on what I paid. A total average annual return of just over 10% PA. That was my WORST performing fund this year.
As for "can almost be wiped out" a bit of hyperbole, methinks.

Linton

pqrdef wrote: »

Other risks we are stuck with anyway, and there's nothing we can do about it. Investment risk is an extra.

And it's quite wrong to imply, as people usually do, that bigger risks lead to better returns. They can easily lead to worse returns, That's what risk means.

Investment risk is basically gambling with your savings. If people want to, fine. But I'm not buying the idea that people should have to, or that they're stupid if they don't.

That is I think a misunderstanding of investment risk. Bigger risk basically means higher volatility. So there is quite a high short term risk that your investments will drop in value. But if there is a high underlying upward trend this will eventually dominate the volatility.

For example:

The HSBC FTSE100 tracker has increased by 100% over the past 10 years. During the year Dec2007-Dec2008 it dropped by 30%.

Looking at the UK Small Companies fund average, over the past 10 years this has increased by over 200% though it did drop by nearly 40% during Dec2007-Dec2008.

So a nice example of a riskier (more volatile) investment providing much higher returns. Higher risk investing certainly isnt mere gambling, its deliberately focusing on the long term with an acceptance of what happens in the short term is of minor importance.

gadgetmind

Glen_Clark wrote: »

So, either way, those returns would not be achieved.

Why do you say that?

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.

All of that is in the figures.

If you had bought a tracker you would be liable for dealing fees and charges.- at least 10% if buying holding then selling?

Where does that 10% come from and what have you bought and sold?

Unless you have a tracker you have actually invested in over that period I don't see how you can know the return.

Trackers track the index (subject to tracking error) and we know what the index has done.

Of course, most investors will also have had holdings in bonds, US equities, pacific equities, EM equities and much more. My diversified and rebalanced holdings have enjoyed a pretty good decades.

jimjames

pqrdef wrote: »

Investment risk is basically gambling with your savings. If people want to, fine. But I'm not buying the idea that people should have to, or that they're stupid if they don't.

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 it does then you won't really be needing to worry about money but getting a weapon to get your own food and protect yourself.

russell_anderson wrote: »

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.

I've asked elsewhere and not had an answer but why does it matter if someone (whether retired or not) has a fund that has gone down when it is still producing an income? You'd have lost money if you panicked and sold that fund 4 years ago but it is back up above that level now with the income in the meantime.

I don't think anyone is suggesting that in retirement you should have 100% of your savings in investments but having something to see you beat inflation through what could be 30+ years of retirement would appear to be a sensible precaution.

coastline

buffman wrote: »

Coastline, have you taken into account dividends in your FTSE return calculations? The FTSE index does not include dividends paid by its constituents. Over the last decade, the dividends have provided a substantial amount of the total return in investing in shares.

I've had a closer look at that calculator...yes...it does take into account dividends...its added 2% per year for a dividend which includes the management fee..

http://swanlowpark.co.uk/svad0901.jsp

Looking at 10 year periods the figures are as follows...with an investment of £1,000 per year.
You can see the last decade or so isn't that good...but for those investing in a pension plan long term its looking healthy.

2002-2011...FTSE...£12,131...Building Society...£11,905.
1992-2011.............£30,938..........................£30,692.
1982-2011.............£97,114..........................£72,780.
1972-2011............£437,805.........................£165,705.
1962-2011..........£1,016,686........................£326,237.

A few examples I've posted on another thread show how the market can be range bound for years which explains some of the recent returns since 2000-2012.

http://forums.moneysavingexpert.com/showpost.php?p=57253133&postcount=3540

http://forums.moneysavingexpert.com/showpost.php?p=57253379&postcount=3541

Thrugelmir

mumf wrote: »

Marathon Man is correct-there will be an outcry when interest rates go up and borrowers realise they cannot afford the debt.

Without borrowers. Then savers won't receive a return either.

So it's not possible to have your cake and eat it.

People that retire now owning a mortgage free property. Have been gifted free equity. The next free decades aren't going to so kind for those buying property. Certainly no windfall.

gadgetmind

coastline wrote: »

its added 2% per year for a dividend which includes the management fee..

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.