Making money from funds

u0362565

Thanks for the input. Good point about cost averaging, that does make sense.

Thrugelmir

TH1878 wrote: »

The person who was gloating at a 6.7% annual return isn't keeping Warren Buffett awake at night.

Buffett has the funds to influence the market. Not comparable to a mere investor.

bowlhead99

TH1878 wrote: »

Alright mate, I originally wrote a sarcastic reply but I decided to lay down a challenge....

Which equity markets have done well over the last 15 yrs by historical standards?

Since the start of January 2000 (which as you know was a high point for UK, US and Japan indexes), China - among several other emerging markets - has grown nicely.

The Shanghai index is up over 200% since the first week of the year 2000 while the Shenzen index is up over 300% in the same time period. Excluding dividends. This decent return is net of the much publicised recent turmoil in which the Shanghai index fell from over 5100 points in early June to 4100 points today (closing below 3500 at one point). So if you had asked last month, the return in Shanghai would have been a movement from 1366 in December 1999 to 5100 in June 2015. So, almost quadrupling the capital value, plus dividends.

If you had chosen to invest all your money weighted towards the largest and most expensive companies that happened to be listed in the UK and constituted the FTSE100 index in late 1999 / early 2000, right before a market crash, you would not have had a great return. But:
- if instead you had selected individual UK listed stocks that grew more or crashed less than those largest and weightiest companies in the poorly diversified UK 100 index, you could have still done very nicely;
- if you followed the UK FTSE100 index but only started investing in January 2000 and drip fed £100 a month, you would have quite a decent return, even though your money has only been invested for half the time;
- if you invested in a more broad global portfolio including both developed and developing markets (e.g. China) and periodically re-balanced your holdings, you would have boosted your returns considerably over buying and holding one type of company (i.e. a FTSE 100 constituent) in one geographical market (i.e. UK listed)

So as masonic says, YMMV.

masonic

TH1878 wrote: »

Which equity markets have done well over the last 15 yrs by historical standards?

Even the FTSE 250 has quadrupled over the last 15 years (including reinvested dividends), translating to an annualised return of 9.7%.

TH1878

TH1878 wrote: »

Alright mate, I originally wrote a sarcastic reply but I decided to lay down a challenge....

Which equity markets have done well over the last 15 yrs by historical standards?

The person who was gloating at a 6.7% annual return isn't keeping Warren Buffett awake at night.

Note to self - don't post when drunk. :beer:

TH1878

masonic wrote: »

Even the FTSE 250 has quadrupled over the last 15 years (including reinvested dividends), translating to an annualised return of 9.7%.

Yes, but it returned 672.15% in the 14 years between 01/01/86 and 31/12/1999, dividends reinvested.

TH1878

bowlhead99 wrote: »

Since the start of January 2000 (which as you know was a high point for UK, US and Japan indexes), China - among several other emerging markets - has grown nicely.

The Shanghai index is up over 200% since the first week of the year 2000 while the Shenzen index is up over 300% in the same time period. Excluding dividends. This decent return is net of the much publicised recent turmoil in which the Shanghai index fell from over 5100 points in early June to 4100 points today (closing below 3500 at one point). So if you had asked last month, the return in Shanghai would have been a movement from 1366 in December 1999 to 5100 in June 2015. So, almost quadrupling the capital value, plus dividends.

Yes, good returns but I said by historical standards. The average for the IA China / Greater China sector between 01/01/1990 and 31/12/1999 was 668.28%, dividends NOT reinvested. This rises to 692.38% with dividends. The records only start in December 1989.

Not comparing like with like exactly but it looks like the period from 1990-2000 was significantly better than 2000-2015.

If you had chosen to invest all your money weighted towards the largest and most expensive companies that happened to be listed in the UK and constituted the FTSE100 index in late 1999 / early 2000, right before a market crash, you would not have had a great return. But:
- if instead you had selected individual UK listed stocks that grew more or crashed less than those largest and weightiest companies in the poorly diversified UK 100 index, you could have still done very nicely;
- if you followed the UK FTSE100 index but only started investing in January 2000 and drip fed £100 a month, you would have quite a decent return, even though your money has only been invested for half the time;
- if you invested in a more broad global portfolio including both developed and developing markets (e.g. China) and periodically re-balanced your holdings, you would have boosted your returns considerably over buying and holding one type of company (i.e. a FTSE 100 constituent) in one geographical market (i.e. UK listed)

So as masonic says, YMMV.

Correct. Diversification is key.

masonic

TH1878 wrote: »

Yes, but it returned 672.15% in the 14 years between 01/01/86 and 31/12/1999, dividends reinvested.

Yes, that's what happens when you cherry pick an exceptionally good period for the markets in general. During those same 14 years, the FTSE 100 returned about 780% (16.8% annualised). Clearly that period does not represent historical standards.

Given that the FTSE 250 was established in 1984 and it is a moot point as to whether the small cap equity premium actually exists, it would seem reasonable to take the historical standard as the long term returns from equities of 5%+inflation as published in the Barclays Capital Equities Gilts Study and inflation between 2000-2015 as being represented by RPI, which was 2.8% annualised. Using those numbers, historical standards would predict a 7.8% annualised return, yet the actual return was 9.7%. Hence, good by historical standards.

bigadaj

In the longer term and timescale comparisons being proposed isn't the effect of inflation being ignored?

Inflation has been restrained but has historiclLy been much higher, and real returns are of real interest to investors.

masonic

bigadaj wrote: »

In the longer term and timescale comparisons being proposed isn't the effect of inflation being ignored?

Inflation has been restrained but has historiclLy been much higher, and real returns are of real interest to investors.

It is something we tend to ignore when reading off past performance stats, and generally shouldn't. It may surprise you to learn (as it did me) that, despite the high inflation of the late '80s and early '90s, inflation for 1986-1999 averaged out at 4%. So it was a bit higher than the 2.8% seen in the subsequent 15 years, but didn't have a material impact on this particular comparison.