Saw this comment on a monevator article

kidmugsy

brendon wrote: »

The value of money does (or has) roughly halve every 10 years. If we are talking about £225,000 in 40 years time, then we are really talking about £14,062.50 in today's money. Roughly speaking. (And there are people who think money in the mattress is safer than a bank!)

Depends on the bank.

jimjames

guymo wrote: »

The article says "average returns in the stock market", which one might imagine to mean historical annualised returns. The S&P 500 has returned very close to 10% for the last century, which would deliver what is claimed in the article. There isn't such long term data for UK markets as far as I know.

Lots of caveats of course, most important being that future circumstances are highly unlikely to look like the last century. Most commentators that I've read suggest much lower returns in the future, so definitely don't use the £225k figure in your planning!

So effectively the comment is correct based on history and ignoring inflation but may not reflect future growth.

If it's 10% including dividends then that's only looking at around 6.5% growth and 3.5% dividend income - doesn't sound too unreasonable.

Glen_Clark

http://www.thisismoney.co.uk/money/bills/article-1633409/Historic-inflation-calculator-value-money-changed-1900.html
This inflation calculator gives £5,000 in 1974 as £52,774.00 today
But I don't know whether it relies on the official statistics that ignore housing costs (which make them a nonsense in my opinion)

Glen_Clark

This Graph (from Cass Business School) suggests house price inflation over the last 40 years about 3 times the Government's RPI statistics.

Glen_Clark

PS: ... and over the last 20 years house price inflation a staggering 6 times as much as the official RPI statistics. No wonder they don't include housing costs in their fairy tale rate of inflation!!!!!

chucknorris

Imnoexpert wrote: »

Some thoughts - not to put you off pensions....

40 years ago petrol was 50p a gallon and I paid 10p for a pint.

My 30k pension pot gets me an annuity which pays only my golf club subs now.

My father died in his sixties and never collected a penny of pension.

The expensive holidays I had in my twenties I see now were some of the highlights of my life. Glad I didn't miss them by putting the money in a pension.

Your call.

I really don't buy into your 'live for the moment' approach, I remember when I was 18 having a conversation with my friends that lasted most of the night about whether you should work harder when you are young or just enjoy yourself. My stance was that when you are young you have enough energy to both work hard AND enjoy yourself, but all of my friends thought that it was better to concentrate on just having a good time. The reason the topic came up was that I had started a business in my spare time, and I was also about to start another business, while working as an apprentice electrician.


BTW I bought my first pint in a pub when I was 14 years old in 1972 for 9.5p, it was the cheapest pint available in that pub (which was known for selling to under age drinkers), I think the beer was called 'silver tankard'.

brendon

jimjames wrote: »

If it's 10% including dividends then that's only looking at around 6.5% growth and 3.5% dividend income - doesn't sound too unreasonable.

Then that 3.5% would compound against the amount. 10% is not unreasonable, but I think 7% is a more reasonable assumption to work with.

bowlhead99

Not sure what you mean that the dividend would 'compound against the amount'? The dividends and capital growth would both compound upwards, because when you are investing inside a pension, you can't take either out to spend. Both components of the return will produce more returns on returns on returns.

7% grand total return would be low by historic standards for a 25 year old with an equities focussed portfolio on a 40 year timescale - though I suppose it does depend on inflation levels if it's a nominal return, you get a bigger number with higher inflation.

However, as the 40 year period from 2015 to 2055 hasn't happened yet, we don't have visibility of what the returns will be, and maybe they will be 20-30% lower as you suggest. Presumably companies are not going to stop making profits even though some parts of the world will have different growth rates and productivity improvement rates and market value change rates (reflecting how those markets are already valued).

brendon

bowlhead99 wrote: »

Not sure what you mean that the dividend would 'compound against the amount'?

I mean if you took the dividends but didn't reinvest them, you wouldn't earn compound interest on them. When people normally talk about '7% annual returns', they are including dividend reinvestment.

edinburgher

The article's over 5 years old, it wouldn't seem to be particularly relevant any more, blogs often mature over time.

I've been reading the blog for years, it's highly informative, you get great comments (including quite a few MSE folk) and I'd go so far as to say that it's one of the best resources for private investors in the UK.

If we're going to attack that article, let's do it because of the 'creepy uncle' vibe that it oozes :rotfl: