Buy to let is for amateurs

System

Bigadaj - i've looked over 15 years, there was a big blip in 2008, which had recovered by 2010. I simply won't sell in a crash, only when its good. I dont think this is riskier than all the self employed nano caps out there, my companies are bigger than that and much more diverse

Volatility will still be a problem getting a reliable estimate at sale time, but if I'm sitting on 27-38 years of compounded accumulation I'll be better off than anyone who sat on large caps. Even if I were to lose half of it I estimate that with the accumulation over the years I'll still be better off

Plus I get 41% of the gross amount back in tax credits
I have a db pension to fall back on, not that it helps profoundly at my low income
And s&s isa in large cap for shorter term plans
I own my own home and i wont risk that with leveraged bets
So i have a chance here to do well, and im speculatingfrom a comfortable position
Im speculating the money that my colleagues pay on rent and fags

System

I know people who own and work for a garage which is microscopic in comparison, and a friend who repairs computers on the side.

Consder, they are 100% invested in ONE nano cap each
And their income relies on it too

And society considers that an acceptable level of risk? When it wont consider a fund that invests in 650+ small caps acceptable risk?!!!

or some landlords who put 100% of their invested money only into property?!!

Im not going to sell at a daft time, or moan to the provider about daily volatility

bowlhead99

Working self-employed as a garage proprietor is undoubtedly a higher risk way to run your life than being in stable salaried employment with a defined benefit pension and putting some of your surplus cash into equity index funds inside a pension to increase the tax credits you can get.

Still, I for one am happy that those entrepreneurs have found a niche that works for them, whether that's going into a business as a mechanic or as a PC technician. That kind of thing is what our economy is built on, even though you might think they are mugs for not being as smart as you.

If you are projecting annualised 15% per annum from an index of small caps you probably have a shock ahead of you when you eventually realise that's not how they performed long term in the past and probably not how they'll perform in the future either. As you are young and have only looked at the short term, your ignorance is excusable. But there's no point rehashing what's been said on other threads.

Small companies have more room to grow than big ones and they have the advantage that many pensions and funds are too big/ too ruley to invest in them (if the fund is significantly bigger than the companies its buying it would completely take over companies which I think breaks some rules. Also pensions don't like volatility

It is true that small companies have more space to grow than large ones; for example, if you have 51% market share, you can't double your market share.

Of course, if you were that company, the fact you controlled most of the market and couldn't double your control would not stop the total market size growing, or you expanding to other markets, and being an extremely powerful force with deep pockets which can blow away the competition. The smallest companies have the most headroom to grow but have fewest resources to fall back on in a downturn and small companies go under all the time.

Your idea that they have some sort of advantage when it comes to growth because the biggest funds and institutional investors in the world can't easily invest in them... is surely you just messing with us as a bit of a joke? You are suggesting that because people can't or don't want to buy their shares, they will grow faster? Interesting logic. No offence intended but perhaps it's a good thing you have stayed in a low paid salaried job rather than trying to make it on your own as an entrepreneur.

As you kindly gave us some links to 'prove' that your smallcap fund of choice doubles every five years, here's a graph showing the last five years for that fund against a random European equities fund I have in my company DC pension, and also against the FTSE World ex-UK index.



Your 15% annualised happened in a nice bull market and you think it will keep delivering that over the long term? Your global smallcap fund is not really outpacing the broader market index or other specialist funds over the past five years, which were all pretty good years. So, what about the periods when it drops 60% in a year, which are not shown on this graph? How will it keep massively exceeding the long term historic averages once you take those into account?

bowlhead99

MatthewAinsworth wrote: »

So i have a chance here to do well, and im speculatingfrom a comfortable position
Im speculating the money that my colleagues pay on rent and fags

IIRC, you're speculating from a position of only earning £18k a year to support a home including wife and child, and the current government thinks that your level of income should qualify for tax credits as it's quite a bit lower than median household income. Hardly what the majority would see as 'comfortable'.

In the future your pounds will be competing with everyone else's pounds to buy goods and services at the market price. The idea that if your family goes hungry because you 'comfortably speculated' your wealth on the most volatile thing you could find to chase quicker growth, that they will somehow be satisfied because the person who pist the money away on booze and fags is also going hungry, is a nonsense.

Being a little less poor than some other irresponsible muppet because you think you have found a sure way to invest your tax credits for awesome gains, does not make you magically wealthy or secure. It just makes you a little better off, hopefully, than some irresponsible muppet. It is not much of a claim to fame and could still leave you pretty poor. So, it's wise to not be deluded about realistic achievable rates of return. But when it turns out you'd grossly misread the likelihood of 15% annualised gains you'll at least be able to go back and see that we told you so.

System

Bowlhead -

. Your idea that they have some sort of advantage when it comes to growth because the biggest funds and institutional investors in the world can't easily invest in them... is surely you just messing with us as a bit of a joke? You are suggesting that because people can't or don't want to buy their shares, they will grow faster? Interesting logic.

They should be better priced and so should accumulate better

As to why it hasn't beaten bigger companies, I can't really explain and would be interested to know why, I would consider diversifying. But then again I'm only going to catch the next rising star this way and its just a matter of waiting for one to turn up

I deliberately avoided micro and nano cap for the reason that they lack resources to grow as much, and the risk of fraud and liquidity problem, small/med caps seemed a nice balance

Hardly what the majority would see as 'comfortable'.

The government makes no consideration of peoples living costs, so for me not having to commute far and not paying rent I'm profoundly better off than even graduates would be if they had to either rent or commute, that's why I dont push myself too hard job wise, as well as not wanting to risk the decent one I have (I've worked in much worse). Neither do we really need cash today as we'd rather retire earlier than go on holiday

The people stuck paying rent & fags are locked in a hopeless trap, I'm providing some glimmer of hope here and the chances of losing all, or even any of it, after so many years is quite remote. This isn't horse racing, the odds are in our favour.

Maybe my 15% forecasts are overoptimistic, hopefully small cap should do better than other sectors and will still beat property - that's all I really need it to do. I can't see rates going up as the boe wouldn't want a house price crash

System

Bowlhead- that large cap Europe fund you showed didn't recover as well from 2008 if I'm looking at the right one, maybe its good performance now is just catching up its true value after that, and long term, would not perform like that

My sipp platform reckons that while my fund is volatile, its less so than the FTSE, I assume because it holds no more than 0.15% in any one company

Really we go into equities willing to take risk for a good return and small caps are just a more intense version of that

I'm not convinced of emerging markets being worthwhile for now, for the record, but I do think they're due a rise

bowlhead99

MatthewAinsworth wrote: »

Bowlhead -
As to why it hasn't beaten bigger companies, I can't really explain and would be interested to know why, I would consider diversifying. But then again I'm only going to catch the next rising star this way and its just a matter of waiting for one to turn up

MatthewAinsworth wrote: »

My sipp platform reckons that while my fund is volatile, its less so than the FTSE, I assume because it holds no more than 0.15% in any one company

So, you have a fund with hundreds or thousands of holdings and no more than 0.15% in one company. If one of them is a rising star which you catch as it quintuples in value, that's not even a percent of gain for the fund. And meanwhile others will be failing and falling out of the index. So it is not a one-way trip to riches.

I deliberately avoided micro and nano cap for the reason that they lack resources to grow as much, and the risk of fraud and liquidity problem, small/med caps seemed a nice balance

The micro /nano / fledgling / venture capital arena is where you actually get the opportunity to 'catch a rising star' before it has risen, rather than when it is already a solid small-cap or mid-cap within the type of fund you've chosen. It is also the area where there are a lot of failures and mediocrity so you really would need to catch the stars to afford the losses and also-rans.

And the micro/ nano / fledgling/ venture area is also the space where the biggest institutions are restricted on what they can fit in and still make a reasonable difference to their bottom line, so the mega funds don't invest. If you are still convinced by that being a reason for growth outperformance of smaller companies "they should be better priced and so accumulate better", then this is the area in which you'd be looking. You had said the big institutions don't invest in tiny companies which is true to an extent, but now you are saying you are ignoring those tiny companies yourself anyway. Your small companies in the Vanguard fund you mentioned have a median value of over $2bn, so at least half of them are going to be in the $2-$8bn range which has lots and lots of investors.

Neither do we really need cash today as we'd rather retire earlier than go on holiday

I don't have any kind of problem with you investing for the long term rather than short term consumption. But just because your goal is retirement rather than a new car, and pension investing rather than buying booze and fags is admirable, it doesn't mean you should treat the pension investment as some sort of 'get rich quick' scheme where you dump all your money into the highest risk and most volatile asset class you can find.

But we had this discussion on your 'am I well balanced' thread last month where everyone said you were not and you should make changes, but you wanted to do your own thing on the basis that investing in a single sector was unlikely to lose you money if you left it for several decades; you were not interested in actually getting a balanced portfolio for your pension, just buying the one thing that you hoped would go up the most.

The people stuck paying rent & fags are locked in a hopeless trap, I'm providing some glimmer of hope here and the chances of losing all, or even any of it, after so many years is quite remote.

I don't know why you're so keen to keep going back to the point of telling us that you have some reprobate mates who will never amount to anything and don't even care about saving or investing and just want their instant gratification from fags. You are on a discussion forum well-stocked with people who *do* care about saving or investing.

So, yes it is good to have some glimmer of hope for yourself if you come from a background where people do not bother about planning for the future. I expect your wife and child are happy that you are trying to plan by coming here and having discussions. They are probably less happy that you never really take on board the views of other more experienced people - but you are right that something is better than nothing.

This isn't horse racing, the odds are in our favour.

Yes, it's very likely that a pension invested today in pretty much any class of equities will make money rather than lose money if you leave it long enough, whereas horse racing there is only one winner and it's more likely you'd fail.

But just because the risk of loss is slim on your fund over the long long term, does not mean it is the optimum solution. The risk of loss with all asset classes is slim over the long long term. So it is important to consider the eventual potential results, rather than just deciding you want equities and 'the most intense version possible, please'. You say:

I'm not convinced of emerging markets being worthwhile for now, for the record, but I do think they're due a rise

Your developed markets smallcap funds have doubled in five years, as well as doubling in the two and a half years before that as they recovered from the credit crunch. Do you somehow think that developed world smallcaps (concentrated 57% in USA, per the Vanguard factsheet) are 'due a rise'?

If you think that emerging markets are 'due a rise' why would you not invest in those alongside the developed smallcaps you hold which have gone on a monster run in sterling terms?

Wouldn't that tie in with your goal of investing in an 'intense' version of equities? There are not many asset classes you could say were 'due a rise' so thinking that emerging market equities are one of them but leaving them out of your portfolio is bonkers if your goal is to maximise potential gains.

Maybe my 15% forecasts are overoptimistic, hopefully small cap should do better than other sectors and will still beat property - that's all I really need it to do. I can't see rates going up as the boe wouldn't want a house price crash

If rates don't go up, then that is good news for property sector as the property sector employs a lot of borrowing and leverage to make its returns. So by saying that BoE won't put rates up, you are saying that property will maintain momentum and be harder to beat with your equities portfolio, and beating property is what you need your equities to do.

You are perhaps thinking that if BoE keeps rates low to avoid a collapse in UK property and economy in general, it will be great news for smallcaps who want to borrow which will help your funds. However, in that global Vanguard fund you hold, over 93% of the assets are not UK companies and their borrowing costs are not really determined by BoE. For example, the US is looking to increase its rates rather than keep them low indefinitely, which is why your smallcap fund would have had a blip a few days ago when the market got temporarily spooked. Japan and Europe meanwhile are still looking at plenty of QE. So once you look at a global portfolio with growth expectations, interest rates and currency effects, your prediction of the BoE activity becomes less important.

Bowlhead- that large cap Europe fund you showed didn't recover as well from 2008 if I'm looking at the right one, maybe its good performance now is just catching up its true value after that, and long term, would not perform like that

It was just an example, which I happened to have in my 'basket' at trustnet because I'd been comparing its components to the other Europe funds offered by my work pension. It struck me that this random fund delivered just as good return as your 'intense version of equities' over the last five years, and so did the world index.

Long term you are right that it would be naive to think it would continue to perform like that, as you can't extrapolate long term returns from a short term result that had a low start point. However, you were saying your smallcap index would continue to deliver your 15% annualised, so you're guilty of the same thing. As smallcaps didn't give a 15% annualised return for the latter half of the 20th century I would be surprised if they decided to do that for the next thirty years to your retirement, from a relatively high start point in terms of average share price to average earnings-per-share..

I am just trying to help, but at the end of the day it is up to you how you spend your tax credits.

coyrls

MatthewAinsworth wrote: »

New investors sometimes feel more confident in property than shares due to the tangibility of what they're buying and the demand underpinning it, and the ability to insure against the worst destruction, and the belief that shares are riskier and that buying 1 unit of property buys them 1x nice added income

But compared to stock market investors they are missing out on-

-Isa /sipp tax advantages
-Much easier and vaster diversification of risks, making shares safer overall in my opinion
-The ability to trade easily without so much fees (although that lack of freedom forces them to follow a better buy&hold strategy that they should follow with shares)
- the better performance of the stock market against enen leveraged property
- shares are already leveraged as the companies are in debt, without exposing you to a mortgage, but you could leverage yourself if you wanted to
- evicting people is an awkward thing to do

I’ve resisted contributing to this thread as I was at a loss to understand why you started it other than as an act of hubris. My resistance has finally crumbled. I would suggest that buy to let, far from being for amateurs, is in fact for professionals in that it requires time, commitment and business skills. I don’t consider myself a professional in the buy to let sphere and have therefore avoided it.

Your post implies that, by contrast to the amateurs in buy to let, you are taking a professional approach. I would suggest that you have shown little evidence of a professional approach to your investment strategy, which, as Bowlhead99 says, has been repeatedly pointed out to you in other threads.

BananaRepublic

MatthewAinsworth wrote: »

Banana -

I would've gone with:
http://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F0GBR06FNN

(But my sipp platform doesn't provide it)

So I'm with:
http://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F000005OPT

Under the portfolio/holdings section it gives you the breakdown

Both roughly double every 5 years, as does the msci global small cap index it tracks. Small companies have more room to grow than big ones and they have the advantage that many pensions and funds are too big/ too ruley to invest in them (if the fund is significantly bigger than the companies its buying it would completely take over companies which I think breaks some rules. Also pensions don't like volatility)

Although these funds have less volatility than a FTSE tracker

You do not understand stock markets from a historical perspective. Your plots are for the last five years which is after the great crash, so stocks have had plenty of room to grow, as a result of the preceding unprecedented fall. More realistically you need to look at the last 20 years, preferably longer, to get a feel for trends. Also, you need to look at different markets, and funds. You have chosen a couple of funds, it is wiser to spread monies over multiple markets, multiple sectors and multiple funds (if active), in order to reduce risk.

I may well do my own analysis of the costs and benefits, I have invested in stocks rather than property so my ego would like you to be right, but I fear that is not the case.

BananaRepublic

MatthewAinsworth wrote: »

I'm not convinced of emerging markets being worthwhile for now, for the record, but I do think they're due a rise

Emerging markets, and asian markets, tend to be highly volatile, and hence I have largely resisted their charms.