What annual % return are people getting (S&S ISA)

steampowered

Your "Total Annual Return" is the money you would make from shares changing in value plus the money you make from dividends. This is a bit like the interest rate you'd get on a bank account.

There is a table showing the average "Total Annual Return" from the FTSE index over the last 6 years here: http://siblisresearch.com/data/ftse-all-total-return-dividend/

If you look at the FTSE 100, the Average Total Return over 8 years is 80%, about 10% a year. This is the return you would have got if you tracked the FTSE 100 index through a tracker fund. You would have done better investing in a FTSE 250 or FTSE All Share tracker.

If you decide to invest through a fund which selects stocks rather than just tracking the index, you could have done better or you could have done worse, depending how your fund manager performed.

bowlhead99

steampowered wrote: »

There is a table showing the average "Total Annual Return" from the FTSE index over the last 6 years here: http://siblisresearch.com/data/ftse-all-total-return-dividend/

If you look at the FTSE 100, the Average Total Return over 8 years is 80%, about 10% a year.

A few points:

Taking the list of total (non compounded) returns for each of the last 8 years and adding them up to then do a simple average by dividing by 8, you do indeed get to 80% total and 10% a year.

However, the dataset commenced right after a huge drop from the credit crunch / global financial crisis in 2007/8 which bottomed out in early 2009 before turning around to give a nice positive total for 2009 as a whole. If you went back one more calendar year, to include 2008 data, you'd see a figure of about -30% right before the dataset starts.

So if you added that in, instead of having 80% to divide by 8 periods and concluding that 10% is what people are currently getting, you would only have 50% to divide by 9 periods and get 5.33%. An average total return of 'about 5%' is massively different to 'about 10%' As most people are investing for the long term, it's important to try to cover a whole economic cycle otherwise you will get some crazy flattering return if you only start right after a big drop. But I appreciate it's just a limitation of the free data on that site not going back far enough to be properly useful.

Another point is that these are non-compounded returns that don't assume dividend reinvestment. Many people will take away the dividend component of the total return and spend it, because the purpose of their investing in the first place was to give themselves an income. But dividends will accrue throughout the year and people using accumulation funds or manually reinvesting them will start to get growth/income on the dividends reinvested before the year is up. That would give slightly larger numbers for their total returns in a given year than what is provided in that table.

The concept for that is similar to how interest-paying bank accounts are quoting an AER - what is the amount you'd have if you just left it for the whole year and came back to see what it was worth at the end, as if the return was given once at year end - rather than the income being dripped in to a separate bank account and you not earning income and growth on the income from earlier in the year.

And then if people were staying in the fund rather than taking out all of their 'profit' and walking away with it each 31 December, the dividend and capital growth returns would compound up, so that the result over 8 years was not only 80% (sum of the individual total returns) but over 100% (multiplying out of all the individual total returns, which then compound up to a bigger one). Obviously that difference in maths is important if someone was trying to work out their actual average annual amount where their start point was a long term total return which had included all the annual returns compounding up.

This is the return you would have got if you tracked the FTSE 100 index through a tracker fund.

Close, but going back 8 years ago it would not be at all unusual to be paying half a percent a year in fees on a tracker oeic or unit trust, and maybe more if you included the cut taken by the fund platform as well as the fund manager. These days a cheap n cheerful FTSE tracker fund plus platform fee can be had for something like a third of a percent all in, less if you have larger amounts to invest.

Having said all the above, the FTSE100 hasn't been a great performing index and it only includes one stocks listed in one country out of many in the world, and its member companies are concentrated in certain industries, so to get a representative figure for the returns of what's in a typical S&S ISA out in the real world, you would need to include foreign indexes and FTSE250 etc.

Mr_K

7.8% annualised over the last 10 years; happy with that particularly as it spans the 2008/9 financial crash.

Thrugelmir

Mr_K wrote: »

7.8% annualised over the last 10 years; happy with that particularly as it spans the 2008/9 financial crash.

For those drip feeding the GFC provided a welcome boost. As prices were simply marked red without any foundation.

If you take the 15 year period after the FTSE peaked in December 1999.

£10k invested would have been worth £15k with dividends reinvested

£10k invested would have shrunk to £9,137 without dividend being invested

Expecting both a high level of growth and income is a challenging objective.

bowlhead99

Thrugelmir wrote: »

If you take the 15 year period after the FTSE peaked in December 1999.

• £10k invested would have been worth £15k with dividends reinvested

• £10k invested would have shrunk to £9,137 without dividend being invested

Expecting both a high level of growth and income is a challenging objective.

30/12/1999: FTSE capital value closed at 6930
29/12/2015: FTSE capital value closed at 6314

The £10k you have in your left hand called 'FTSE shares' shrinks to £9.1k

But the pile of cash in your right hand called 'the money I've taken out of my FTSE shares by way of dividend' is pretty healthy.

I mean, the dividend yield has been as high as 5.5% (when prices were on the floor) and as low as 2% (when low-div stocks were excessively valued), but wanting to be conservative and without pulling out the actual data you might guess 3%+ as an average. Being overly simplistic (and pessimistic), if we said the FTSE capital value was on average halfway between its peak and trough, you would have about £7.5k of capital at work on average, earning 3%, times 15 years which is comfortably over £3k.

So, whether or not you choose to re invest the dividends at low prices or high prices or whatever prices you can find, it's a bit disingenuous to suggest that your £10k would have shrunk over that 15 year period. You would have almost your whole £10k in shares in one hand and a fat pile of cash (worth rather more than the missing £0.9k) in the other. You only lost money over that timescale if you ripped up all the dividend cheques and threw them in the bin.

Of course, I agree that getting the best return from your money usually means making sure you keep 'letting it ride' on risk investment opportunities for the long term rather than taking it off the table (or worse, taking it off the table and frittering it away)