Portfolio growth rates - short, mid, long term and post retirement

Waldorf_Statler

Hello All,

I have been investing for 15 years or so since my first "proper" job at 21. It's only recently that I have begun to take an active interest in my investment performance and long-term retirement planning. In addition to an "emergency" fund, I have £130k in my DC pension and £35k in S&S ISAs and a few individual shares. This feels like an amount that I should nurture a bit more than I do...

So, accepting that I need to develop a better investment strategy I was hoping for some guidance on my past performance. I have a high tolerance for risk. 75% of my DC pot is in equities (split 50:50 UK and rest of the world), 20% in various bonds and 5% in property.

Since Apr-11, when I began tracking this, I have achieved an annualised return of just over 6%, including inflation. This is the underlying price of the investments, not the growth in my portfolio's value into which I have been drip-feeding.

1. Is that any good over this time frame? It looks reasonable compared to FTSE 100 returns over the last 3½ years but should I have hoped for more? n.b. I am restricted to the investments offered by my employer's scheme but do make AVCs (over and above what I need to contribute to get the max from my employer). So I could put that into a SIPP instead.

2. What is a reasonable growth assumption for long-term planning? I see many calculators using 7% and presumably this is in nominal terms. So my 6% would have been below that assumption.

3. For very long-term planning, my final 5-10 years of pre-retirement investment is less likely to achieve as high a rate of return as these earlier years as I would seek to consolidate and hold more in cash / bonds. Does anyone have any advice as to how that is factored into their planning? Do you just ignore it and assume that at age 60-65 you would stay invested in the markets anyway so would still have exposure to growth (and of course losses). I've heard people say that even at age 70 you could be 15-20 years off your life expectancy so that is still a long-term investment time frame.

4. Post retirement, assuming I use drawdown, what returns should you expect? Inflation plus a couple of points?

I can post more details if required.

Thanks for your time - I read lots of these posts and some of your advice is truly inspiring.

Linton

) I am not clear from your posting as to whether you are saying the actual fund returns were an annual 6% above inflation. If so it seems reasonable especially as you are only 75% invested in equities. The past 3 years have not been over-exciting for investing. You could have hoped for more but I suspect your employer's pension doesnt offer the higher risk niche funds that could have helped.

2) On the growth % to use for planning, it depends on how you do your planning. I adopted a very pessimistic 1% above 3% inflation so I could be pretty sure I was safe. The 7% the calculators use are probably an absolute value, not relative to inflation.

3) Why do you want to derisk as you approach retirement? It makes a lot of sense if you plan to buy an annuity but not so much if you intend to draw down. I have a mixture of annuities and drawdown. The latter I have kept about 70% invested in equities for the reasons you give.

4) For planning purpose I have continued to use my 1% above 3% inflation. Then anything extra is a pleasure. Much better than having an optimistic assumption and being disappointed most of the time.

Waldorf_Statler

Linton - thanks for your reply.

1) On top of what I paid in, my portfolio returned 6%. So my presumption is that includes inflation. I can describe how I calculated that, but fear it would add to the confusion! So that's not so good, right? In terms of allocation should I be looking to put some of the remaining 25% into equities? You are correct in saying that the range of funds available is not exciting. That was why I was toying with opening a SIPP for AVCs and swallowing the added hassle of claiming the tax relief.

2) I have looked at a range of assumptions on the growth rates, I just wondered what was considered "reasonable" relative to what I've actually achieved. I like the idea of being cautious but equally there are outcomes where I would actually have more pension provision than I need and I could use the money differently in the here and now. My priority is to have what I need for retirement but I would also like a bigger house!

3 & 4) Understood