Shouldn't everyone who hasn't a clue receive 6 - 9% tax free on their investments ?

agarnett

I have in the last few days been looking at some family investments which no-one in the family has a clue about including the family members that made them ! They know they receive "stuff" through the post, and they know to the nearest £50,000 (1/3rd of current value) roughly what their investments ("ISAs or PEPs or summat?" - their words) might be worth. But beyond that, nada! They have no idea of the ups and downs or the average yield.

They haven't been touched by anyone other than the bank who once had a life insurance and investments sales force, or the fund managers themselves (many times) in maybe 25 years.

I haven't been able to plot performance all the way back yet, but I have discovered an average 6.9% tax free yield on one substantial part over the past 10 years, and 8.4% over the past 9 years on another. A substantial part started life as PEPs sold by the bank.

Bearing in mind we are talking about totally unconscious investment by working class customers who take no risks, why can't all such customers achieve these types of yield ? Why is 2.25%pa described on MSE as a "cracking rate" for ordinary people's savings ?

AndyT678

agarnett wrote: »

Bearing in mind we are talking about totally unconscious investment by working class customers who take no risks, why can't all such customers achieve these types of yield ? Why is 2.25%pa described on MSE as a "cracking rate" for ordinary people's savings ?

Because you (and probably they) are massively underestimating the risks that they are taking.

Eco_Miser

Actually, they will have been taking risks, without realising it, and it seems the bank's FAs did their job properly. This seems to be a good example of the advantages of 'buy and hold'.

The 2.25% is risk-free (in that the first £85,000 is guaranteed, although still losing value to inflation), and nearly 5 times base rate, your relatives have a (very, very) small risk of losing everything, and probably lost about 40% of their capital in 2007-8, and regained it since.

ChesterDog

Because it IS a cracking rate on savings.

These other things are not. They are investments.

bowlhead99

agarnett wrote: »

Bearing in mind we are talking about totally unconscious investment by working class customers who take no risks, why can't all such customers achieve these types of yield ? Why is 2.25%pa described on MSE as a "cracking rate" for ordinary people's savings ?

You are not talking about "totally unconscious investment by working class customers who take no risks".

You seem to be talking about "investment by working class customers who are not conscious they are taking risk because they don't know what they are doing, or what could happen to the value of their holdings and why, but got away with it during a period of broadly rising markets since 2005 or so".

Those working class customers who didn't realise what risks or volatility their savings could be exposed to, and never thought to check their balances because they were building a nest egg and didn't need to call on the funds, may have been horrified if they checked their balances around Easter 2009 when the western stock markets were relatively low.

The people who think that a fully insured and guaranteed 2.25% risk free is a "cracking rate" (given it's above the headline rate of inflation, and over 4x the central bank base rate in UK, US and Europe, with no risk of being unable to get the money back), may ultimately not do so well as those who invest in products with risk. If you take risk, then much higher returns are possible over the long term, which is why people on this forum are generally encouraged to invest if they have a long time horizon, rather than save in a deposit or current account.

Certainly the average working class person can very easily make a return of 6-8% via an "S&S ISA or summat" without having a clue what they are doing and just picking an equities or mixed asset fund with a "pin in a phonebook" approach, and holding it fora long period of time and not looking at it again until it's got bigger.

This cannot possibly be guaranteed, because the companies the fund invests in might not be successful, and even if they are, the market view of the value of those companies will change over time - and not always for the better, over a particular cherry-picked date range which might correspond to the dates the person wants to invest and then later sell up.

Consequently, holding £150k of "funds or summat" is not a particularly low risk approach. There is no doubt that a lot of investment funds sold 25 years ago will have increased in value substantially in the quarter century since purchase, whether or not the investment manager's ongoing fees are outrageous and whether or not the original bank salesman would be able to offer the same product to the same customers under modern regulations.

KGriff

£150,000 at 6.9% tax free will give a saver/investor £862.50p interest per month, getting towards a reasonable pension income for one individual who might want to retire comfortably, but not that much, if split between many family members, but it's in a highly risky position (I would suggest) if it's gathering interest at that pace.

So anyone retiring would probably look to a more stable income .. So assuming today's 'safe rates' are around 2% (let's be ambitious and say that is tax free) .. You would now receive £250 per month interest... Not what I would call a pension to live on, not even for one person.

Most financial institution lending rates can be well below the 6.9% these days and if that was the case, we would all be borrowing to invest in your families scheme.

I guess you and the family were simply born lucky and have ridden the crest of a 25 year wave.

Some of us just have a bit of a sinking feeling... Well treading water to stay afloat is probably a better way of describing the 'overall' interest rates these days, by comparison.

I assume you and the family were frozen in time and have just been awakened to find you had your savings, investments and assets frozen too, earning a constant 6.9%. I wouldn't let them thaw out if I was you, but they might start to melt quicker than you think.

droopsnoot

Is it only me who badly wants to know specifically what these investments are? 6.9% doesn't sound bad to me, unless rather than returning that they've actually been increasing in value by that, in which case they might be a bit high for me.

colsten

droopsnoot wrote: »

Is it only me who badly wants to know specifically what these investments are? 6.9% doesn't sound bad to me,

it's not just 6.9%, it's 6% to 9% if the thread title is anything to go by. I have decided to take the 9%, just need to know where to sign. Oh, and I want it 9% guaranteed.

jimjames

droopsnoot wrote: »

Is it only me who badly wants to know specifically what these investments are? 6.9% doesn't sound bad to me, unless rather than returning that they've actually been increasing in value by that, in which case they might be a bit high for me.

Many things could have easily returned those sort of amounts.

When the dividend yield is 3-4% on the FTSE100 you're only looking at 3-4% annual capital growth.

I think this really shows the benefits of buying and holding rather than checking values every day and panicking when something drops. Lots of people don't bother checking their interest rates and leave money sitting in cash accounts paying a pittance, in many cases they'd be far better off leaving it in investments and not checking those either.

But they do need to be clear that these are not risk free returns comparable to a savings account.

Porcupine

It needs to be taken in context.

Look at base rate over that period. For much of the 1990s it was 6% or above. Your annualised rate was only just better than base for this period. So you need to compare it with base rates and inflation.

If I put in £1000 in 1990 into an inflation calculator, it tells me that would be £2223.84 in today's money. That works out to be 3.24% annualised.

So 6.9% is good, but it's only about 3.5% above inflation. Which is what you can get today in a current account, as it happens. Though this anomaly is unlikely to last for 25 years.

Glen_Clark

Porcupine wrote: »

If I put in £1000 in 1990 into an inflation calculator, .

You would be ignoring housing cost inflation. Osborne counts rent increases as 'Growth', which makes Britain the 'Strongest Economy in Europe'