Current market carnage - anyone selling or buying?

InvestInPoker

BrockStoker wrote: »

But surely the statement "because it's applied every year" also applies if you start off with an extra few percent.

Perhaps I'm wrong, but given the choice of staring off with:

A - 100k & 0.5% AMC
B - 105k & 1.0% AMC

B looks like the better option to me. Anyone care to do the maths (not my strong point!)?

I did it for a 30 year time scale. I assumed an average growth rate before charges of 8% PA, so 7.5% for A and 7% for B charges included.

You end up with after 30 years

A - 875.50k
B - 799.29k.

I could be wrong as I have just immediately done this on seeing your post so if I am someone please correct me.

JohnRo

There's no one simple answer, if quite a few years are negative the knock on effect of the higher AMC will compound the losses.

here's a crude example


edit: Having tried a few quick combinations I don't think there's any set of random gains and losses year on year that can make the 105K @ 1% beat the 100K @ 0.5% over the 20 year period.

InvestInPoker

Here is a good article I read before on investing unluckily at market peaks. I have not backtested the quoted figures myself though.

http://awealthofcommonsense.com/worlds-worst-market-timer/

InvestInPoker

Also flock of sheep is a quality poster, I welcome all trolls in market crash threads. If we suffer further steep losses next week I hope for more posts.

This is hardly really a crash though yet is it? I mean not like we will get at some point in the future and have had in the past.

BrockStoker

Thanks both of you for the input. I can see now that I was slightly off the mark with that aspect. I'll be paying a lot more attention to AMCs from now on.

I still think it's not a bad idea to try to buy low - it can only help, providing you have good timing.

It has left me wondering though, in the example I posted and using the same simulated market conditions that InvestInPoker suggested (also, if anyone has time to kill, using an actual performance benchmark like the FTSE 100... and S&P 500 would be interesting to see too!), how many K would B need to be before it broke even with A given investment periods of 10, 20, and 30 years?

colsten

BrockStoker wrote: »

I still think it's not a bad idea to try to buy low - it can only help, providing you have good timing.

I'd like to nominate the above idea for the Nobel Prize Of Logical Crystal Balls, for 2016 and for all subsequent years.

bowlhead99

BrockStoker wrote: »

It has left me wondering though, in the example I posted and using the same simulated market conditions that InvestInPoker suggested (also, if anyone has time to kill, using an actual performance benchmark like the FTSE 100... and S&P 500 would be interesting to see too!), how many K would B need to be before it broke even with A given investment periods of 10, 20, and 30 years?

I haven't got the time to kill to work out every possible permutation for you. Get a spreadsheet and play around if you're that interested. But the easiest way to see it is with 0 growth so you just reach the end of the year with 99.5% of what you started if you have a half percent fees, or 99% of what you started if you have one percent fees.

So, ten years,
£100k*0.995*0.995*0.995*0.995*0.995*0.995*0.995*0.995*0.995*0.995
= £95.1k
£105.15k*0.99*0.99*0.99*0.99*0.99*0.99*0.99*0.99*0.99*0.99
= £95.1k

Or in shorthand
£100k*0.995^10 = £95.1k
£105.15k*0.99^10=£95.1k

Similarly
£100k*0.995^20 = £90.5k
£110.6k*0.99^20=£90.5k

Whether your start-of-year pot goes up during the year due to gross investment performance or down during the year during to gross investment performance - excessively high fees will kill it. Depending on growth rates, half a percent saved on the fees for 30 years can stop you losing 20% or so of your profit, even though simple maths ignoring compounding says that half a percent times 30 years is only 15%.

Of course if by paying an extra 0.5% of fees you get 0.6% extra growth or 0.6% fewer losses then it is worth paying the fee, but you won't know whether the difference in growth is a even positive until AFTER you have committed to buying the fund and committed to paying the fee.

BrockStoker

InvestInPoker wrote: »

Also flock of sheep is a quality poster, I welcome all trolls in market crash threads. If we suffer further steep losses next week I hope for more posts.

This is hardly really a crash though yet is it? I mean not like we will get at some point in the future and have had in the past.

+1

I do like these type of threads, mostly because it's interesting to see how people react (or not as the case may be) during times like these. Who said investing was boring?

PS. Just for a little (extra) speculative fun, anyone care to say what their expectation is for the next week? I'm definitely not sure, but suspect indexes will continue to fall when the week starts, although I have a feeling they will recover (at least a little - possibly DCB though) by the end of the week.

BrockStoker

bowlhead99 wrote: »

I haven't got the time to kill to work out every possible permutation for you. Get a spreadsheet and play around if you're that interested. But the easiest way to see it is with 0 growth so you just reach the end of the year with 99.5% of what you started if you have a half percent fees, or 99% of what you started if you have one percent fees.

So, ten years,
£100k*0.995*0.995*0.995*0.995*0.995*0.995*0.995*0.995*0.995*0.995
= £95.1k
£105.15k*0.99*0.99*0.99*0.99*0.99*0.99*0.99*0.99*0.99*0.99
= £95.1k

Or in shorthand
£100k*0.995^10 = £95.1k
£105.15k*0.99^10=£95.1k

Similarly
£100k*0.995^20 = £90.5k
£110.6k*0.99^20=£90.5k

Whether your start-of-year pot goes up during the year due to gross investment performance or down during the year during to gross investment performance - excessively high fees will kill it. Depending on growth rates, half a percent saved on the fees for 30 years can stop you losing 20% or so of your profit, even though simple maths ignoring compounding says that half a percent times 30 years is only 15%.

Of course if by paying an extra 0.5% of fees you get 0.6% extra growth or 0.6% fewer losses then it is worth paying the fee, but you won't know whether the difference in growth is a even positive until AFTER you have committed to buying the fund and committed to paying the fee.

Thank you bowlhead. Your answer and time is very much appreciated (as always). Your summary makes sense but I will have to try to digest the figures you posted, and perhaps try to get to grips with spread sheets.

redux

colsten wrote: »

Never mind Mystic Sheep's magic stock market manipulation powers - in case you have missed it, the real action has now moved to matching sort codes with calendar dates. You heard it first on MSE. It will take the sheep world by storm.

If I manage to live until the year, I'll be too senile by then to find 99 months on the calendar