What do you class as a successful investment?

masonic

Keeping wrote: »

I look at some funds and stocks and compare them to mine and even though I've only been doing it for 6 months, 3% gain on each of my two funds seems like a fail, or at least a bad investment choice, would you agree?

Not at all. Historically, average market returns have been about 6% above inflation. Over the past 6 months, markets have been pretty stagnant. So, in the current environment, 3% over 6 months looks quite reasonable.

I know hindsight is a wonderful thing and we can all sit and say "but if I did this instead of that" etc but for the experienced / lengthy investors here, do you ever think "why didn't I put it in this fund or that fund" for example?

There is always a tendency to look on bad performing investments with remorse, but if you are investing seriously, then you will be picking an asset allocation that is designed to manage risk and is suitable for you. If some other racy investment happens to do better, who cares? You could have invested, but perhaps you weren't willing to risk the loss of 80% of your investment. You could decide to take on more risk and start picking more volatile investments, but you will be exposed to the potential downside as well, which you might not be able to stomach.

slowpoke_rodriguez

Keeping wrote: »

£

or am I missing something?

A Brian......

Keeping

slowpoke_rodriguez wrote: »

A Brian......

A brian? Not sure I follow.

noh

slowpoke_rodriguez wrote: »

A Brian......

Pincher

Beat the index.


If everybody can get 5% by keeping money in a deposit account, the so called risk free rate, then you need to get more than that to have made it worth the hassle of getting out of bed.

bowlhead99

Keeping wrote: »

I look at some funds and stocks and compare them to mine and even though I've only been doing it for 6 months, 3% gain on each of my two funds seems like a fail, or at least a bad investment choice, would you agree?

Example Biotech Fund

and this isn't just one particular fund, they're all generated about 80% to 100% returns a year. £10,000 5 years ago and you'd be sitting on a cool £320,000 and that's without even adding in extra money over time. It's just insane!

Hopefully you've got the message from the other posters but the chart is showing the full progression of your initial investment. So over toward the right hand side of your chart it is showing the total value that accumulated over time is going from 300% *of the £10k invested * (which is £30k) to almost 500% *of £10k* (which is £50k) and doesn't get close to a cool £320,000... which would be the 3200% point on the graph.

It is still a good performing investment over that time period, no doubt about that. But because it's a super-specialist, volatile fund, it is designed to give extreme performance. The returns you get from your own funds need to be considered in the context of how much risk you're taking.

If you are investing in something that can go up or down by up to 10-20% in a typical year, you shouldn't get upset that it doesn't give you the same performance as something that was designed as a really risky super-specialist volatile fund that can go up or down by 80-90% a year. You should be happy that it doesn't! Because you don't know what type of year we'll have next and you really really want to avoid losing 90% of your money, because if you turn £1000 into £100, you will then need to wait around for 900% profit on the £100 just to get back to where you started.

Below is a picture of that Biotech Growth Investment Trust over a different time period. This was during a market downturn, where over a two to three year period, a generalist mixed asset fund might have lost 20-30% and a mainstream 'all of your money into shares in large established companies' fund would have lost 30-50%.

By the end of the period, someone who invested £1000 in the mixed asset fund is still sitting on £800 which is not bad, it is to be expected sometimes ; the one who bought the equities fund might only have £500-700 which is really painful, but he bought the riskier fund because he wanted better performance over the long term and knows he will see the occasional crash and recovery along the way. But someone buying the Biotech Growth fund at the wrong time is sitting on less than £200 and wondering if he'll ever get the rest back.



So to answer the question "What do you class as a successful investment?" - a successful investment fund is one that meets the objectives that it sets out to achieve. Different funds set themselves different objectives and investors sign up to invest in them and pay management fees to someone to make it happen. The objective might be to grow capital while paying out at least 3% in income every year. It might be to focus on preserving capital when times are bad. It might be to invest in shares from around the world with the aim of exceeding the return of some world index over rolling five-year periods. It might be to track a specific index of shares.

If the fund does what it said it would, it is a success and you should not have any complaints. That doesn't mean you'll be happy you invested in it and not something else, because in a raging positive 'bull market' you will wish you had bought something volatile and taken the massive gains instead of buying something focused on capital preservation. Or if you bought a Japanese tracker fund that is designed to perfectly track the Japanese stock index, and then they have a nuclear disaster so it drops 15% in a week, you might wish you had a bought a more generalist global fund instead.

But if the Japanese tracker fund goes down by the exact percentage that the Japanese stock market goes down, it has achieved its objective of 'tracking' and is a great fund. Maybe it wasn't a great fund for you to buy, because you didn't really want the average returns of the Japanese stock market. In that case, you have made an unsuccessful investment choice, even though you invested in a very successful fund.

When you see other funds with 'better' results than yours it can be hard to get your head around the concept that they might not be 'better' funds. If your fund goes up 5% and another one goes up 8%, you probably think the 8% one is a better fund? But if your fund was 'top of the class' compared to all its rivals that invest in similar stuff, while the 8% fund was the worst UK 'small cap' fund in the market and all the other small cap funds taking the same risks got 15%, then actually that small cap fund giving only 8% is a terrible investment (especially when it crashes with all the other ones in the sector by 50% next year)... while your fund is great because it delivered the returns that were expected.

Also, performance over 6 months is largely irrelevant. 3% up can turn into 3% down or 10% up or whatever, over the next 6 months. When you are considering whether a fund is likely to meet its objectives and likely to be the type of fund you want in your portfolio, you need to be looking at long time periods.

So, don't look at the 6 month charts or the three year charts or the five year charts that conveniently avoid the 2007-2009 downturn - look at a longer period and see how the fund did against the sector and the sector did against other sectors. If you are not sure what sectors to invest in, because you're not psychic, invest in a bit of everything. Either by buying lots of funds, or more sensibly by buying a couple of funds that collectively invest in everything.

masonic

Pincher wrote: »

If everybody can get 5% by keeping money in a deposit account, the so called risk free rate, then you need to get more than that to have made it worth the hassle of getting out of bed.

Please could you tell me where I could get a 5% net return on a £10k investment without taking any risk? Please feel free to assume I am a basic rate taxpayer and the money currently has ISA status if that helps. I look forward to being enlightened. Thanks.

bigadaj

masonic wrote: »

Please could you tell me where I could get a 5% net return on a £10k investment without taking any risk? Please feel free to assume I am a basic rate taxpayer and the money currently has ISA status if that helps. I look forward to being enlightened. Thanks.

To further play devils advocate....

Poster didn't say anything about a net return, though in the mext tax year the new tax free allowance of £500/£1000 per year will take care of that.

5% achievable by nationwide and tsb current accounts, held by a couple, obviously 4-5% if an individual.

Archi_Bald

bigadaj wrote: »

5% achievable by nationwide and tsb current accounts, held by a couple, obviously 4-5% if an individual.

On relatively minor amounts of money.

masonic

bigadaj wrote: »

To further play devils advocate....

Poster didn't say anything about a net return...

No they did not, but it would be unfair to compare the gross returns from a deposit account with the net returns from a fund.

..., though in the mext tax year the new tax free allowance of £500/£1000 per year will take care of that. 5% achievable by nationwide and tsb current accounts, held by a couple, obviously 4-5% if an individual.

Note that Pincher did say "everybody can get 5%", "everybody" implying not just couples and "can" being in the present tense.