10 year return expectations

GavB79

If one were to invest 15k each year for ten years, would a sum of 200k at the end of the period be at all realistic (in today's money)? I believe it's not too delusional.

What would be your methods of investment if this were your goal? I'd be interested to hear some different approaches.

I am currently 100% in VLS100.

pip895

That would equate to under a 5% return - so not too unrealistic I would say.


VLS 100 would be a reasonable option - you could add some additional funds to give cover for small companies and perhaps commodities.

sabretoothtigger

In ten years your 15k from year 1 could be worth maybe 7.5k in the amount of goods it will buy.

If you had invested 15k in 1990 and it returned 30k to you now you would definitely be poorer. That effect might speed up so I dont know the answer to your question, what is realistic

edinburgher

In ten years your 15k from year 1 could be worth maybe 7.5k in the amount of goods it will buy.

I think you're making a very valid point that the OP hasn't necessarily considered.

The question basically seems to be 'what would you invest in if you were targetting a 5% return over the next decade?'

alanq

pip895 wrote: »

That would equate to under a 5% return - so not too unrealistic I would say.

GavB79 wrote: »

If one were to invest 15k each year for ten years, would a sum of 200k at the end of the period be at all realistic (in today's money)?

The OP seems to be hoping for a return of 5% pa above inflation after tax.

SomeUser

If you want an absolute value of £200k in 10 years time, you're solving the equation:

200=15 s(amult)(10) where i is unknown.

s(amlut)(10) is the accumulation formula and equal to [(1 + i)^n - 1] / d where i is the interest rate, d is the discount rate (1-1/(1+i)) and n is the number of years.

Rearranging gives
[(1 + i)^10 - 1] / d = 13.333 and gives i being between 5 and 6%, as above. To fully solve, you would just linearly interpolate between the two.

If you assume inflation is 2.5%pa then £200k would be 200*1.025^10 = 256k. Resolve the accumulation formula for £256k gives interest being between 9 and 10%.

This assumes that 15k is paid in annually at the start of each year and inflation is 2.5% over the next 10 years.

I think it's highly unlikely that you would get 9-10%pa on average for 10 years if inflation is 2.5% per year.

Your_Hero

GavB79 wrote: »

If one were to invest 15k each year for ten years, would a sum of 200k at the end of the period be at all realistic (in today's money)? I believe it's not too delusional.

What would be your methods of investment if this were your goal? I'd be interested to hear some different approaches.

I am currently 100% in VLS100.

It's not at all realistic.

To put into perspective of what you're asking, if you had £200,000 today, assuming inflation is 2.5% p.a., then in 10 years' time, for the original £200,000 just to be worth the same as it is today, it needs to be (200,000 * [1.025^10]) = £256,016. Not too much to ask it seems...

However, what makes matters worse, is that you don't have £200,000 today. In fact it will be paid in instalments of £15,000 for 10 years which, doesn't take a genius to work out, is only £150,000. This also means the last £15,000 doesn't even have time to really grow.

All in all, you would need a growth rate of around 9.5% to get the equivalent of £200,000 today which is also what SomeUser has said above.

westy22

SomeUser wrote: »

If you want an absolute value of £200k in 10 years time, you're solving the equation:

200=15 s(amult)(10) where i is unknown.

s(amlut)(10) is the accumulation formula and equal to [(1 + i)^n - 1] / d where i is the interest rate, d is the discount rate (1-1/(1+i)) and n is the number of years.

Rearranging gives
[(1 + i)^10 - 1] / d = 13.333 and gives i being between 5 and 6%, as above. To fully solve, you would just linearly interpolate between the two.

If you assume inflation is 2.5%pa then £200k would be 200*1.025^10 = 256k. Resolve the accumulation formula for £256k gives interest being between 9 and 10%.

This assumes that 15k is paid in annually at the start of each year and inflation is 2.5% over the next 10 years.

I think it's highly unlikely that you would get 9-10%pa on average for 10 years if inflation is 2.5% per year.

You lost me at 'If you want...'

sabretoothtigger

alanq wrote: »

The OP seems to be hoping for a return of 5% pa above inflation after tax.

One year, a few years of good gains even but every year for a decade is tending towards warren buffet territory.

Go with one of the established fund managers and maybe its possible but a person themselves is unlikely to do so well for so long or you'd be recruited. So take 1 or 2 % for fees off the 5 and you have I guess a realistic nice scenario ?

This is barring extraordinary events, like if you got gold in 2000 and kept it for the next ten years I guess that makes you a relative genius, plenty popped up on these forums to tell us they'd done this
I think gold till 2024 could repeat that but who knows and are the miners the key or... some of them are going broke now

Inflation plus 1%, be happy at that

bowlhead99

5% after inflation is not too delusional. You don't have to get 5% each and every single year, even Buffett doesn't do that ; you can lose 8% next year and gain 25% the year after and still be a percent or so ahead of your target of having averaged 5% plus 2% inflation compounded for the 2 years.

Obviously if inflation is bigger it is a bigger ask, but assets can and do go up nicely in times of inflation. If the money is dripping in over time, the performances in later years have a bigger relative effect as there is a bigger overall investment pot when the performances happen.

As the others above proved, what's being aimed for here isn't 5% over inflation but 7% over 2.5% inflation which is rather less realistic especially after fees. People in pension drawdown might aim to draw 4% a year while preserving capital after inflation, though a lower figure like 3.5 or 3% would be a safer target. So generally 5% or 7% would be a pretty risky assumption off a mixed set of assets.

But if we are going all out to invest in higher risk assets (ie 100% equity with some high volatility stuff included) 5% plus, on top of inflation is not at all crazy on a longer term view. 7% over a decade however, would be pushing it on historic measures, if all you were looking at was mainstream global largecap (i.e. the VLS 100) and especially not starting from a historic low valuation level.

The "after tax" bit I assume can be ignored given we're talking about 15k lumps, conveniently ISA-sized.

GavB79

My apologies for using the wrong terminology if 'in today's money' didn't make it clear I meant adjusting for inflation. I do realise £15k now doesn't have the same purchasing power as £15k non-adjusted ten years' later.

Thanks for the maths showing I would require ~7% over inflation to achieve the figure in the OP. So, stretching it, inflation plus 5% is the upper end of realistic expectations over the long term is the basic message I'm getting.

And yes the scenario was keeping it all in an ISA wrapper.