Is starting a pension like taking a gamble on the future?

Johnny_Doe

I expect the markets to go up, of course, they always do, but they also go down, 30-40% maybe more (albeit temporarily then to recover a few years later)! Look at how much they have increased in the last 5 years.

I am nervous because I invested (IFA advice) £3k at the top of the dot com bubble and it's currently at £2.5k 17 yrs later!! Not a great return I'm sure you'd agree? Although it's still only on paper.. I'd rather catch the market when it dips and hope for a better return over the next 17 years. I'm also investing regularly monthly into the market but currently in defensive funds..

Look at the FTSE 100 since the peak in 1999, 6930 (dec 31st 1999), not much more than that now 17 years later!

So yes I think timing the market is very important..

bowlhead99

Johnny_Doe wrote: »

I am nervous because I invested (IFA advice) £3k at the top of the dot com bubble and it's currently at £2.5k 17 yrs later!! Not a great return I'm sure you'd agree?

Correct, it is not a great return. My dad bought a US fund in Sept/Oct 1999 and it only got back to break-even a few years back, having lost oodles of dollars in the post dot-com bubble crash.

However, presumably you didn't only invest in that one £3k fund because IFAs do not typically put you all in one massively volatile fund nor provide ad-hoc advice for only a £3k investment, as any reasonable fee would be crippling on that amount.

Look at the FTSE 100 since the peak in 1999, 6930 (dec 31st 1999), not much more than that now 17 years later!

You are forgetting the dividends paid by the constituents of the FTSE on a weekly basis, for the 17 years. Reinvested as they were received, to give the 'total return' of the index over the period, your returns would be 80-90%.

Of course, the FTSE100 is a poor index to try to invest in, as it is skewed very heavily to a few large companies and some particular industry sectors. The FTSE250 as perhaps a better measure of the UK economy has done 150% on a total return basis.

Looking more broadly at world stockmarkets (because most investors trying to grow their wealth over the long term do not restrict themselves to their 'local' stock exchange), a GBP investor in the FTSE World Index would have received a total return performance of +350% since December 1999. £1000 became £4500. You would have more than doubled your money by summer 2007, then given up most of your gains in the credit crunch crash, then made it all back again and much more.

So yes I think timing the market is very important..

And yet investing even at the worst possible time can deliver solid gains as the figures above show, so timing is not everything. As the different percentages achieved on different indexes shows, it is important to invest broadly (rather than just in one specialist fund which drops 80% and takes an absolute ageto recover).

Malthusian

Johnny_Doe wrote: »

I am nervous because I invested (IFA advice) £3k at the top of the dot com bubble and it's currently at £2.5k 17 yrs later!! Not a great return I'm sure you'd agree?

Yes, it's pretty appalling. An investment in the FTSE All Share would have doubled in value over 17 years. What was the investment in? Did you withdraw the dividends from the investment or reinvest them? Did an IFA really advise you on a very small investment of £3,000 or were there other investments involved?

Look at the FTSE 100 since the peak in 1999, 6930 (dec 31st 1999), not much more than that now 17 years later!

So yes I think timing the market is very important..

No, dividends is important. An investment in the FTSE 100 is up 86.6% over 17 years, despite the dire performance from a pure price return perspective.

Your post illustrates why market timing is much favoured by investors so sophisticated they don't understand dividends and compounding.

Johnny_Doe

Thanks both, I'm here to learn and take advice and have learnt something new so many thanks for your advice!

The investment was in Aberdeen (now Henderson) Technology fund (now Henderson Global Growth)

https://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=PLTEC&univ=U&typeCode=FPLTECA

As you can see it's done well in the last 5 years, 120% up. I haven't seen any mention of dividends on the paperwork which is why I'm confused about how dividends work on funds? Or are they just reinvested automatically? I'll have another look..

AnotherJoe

Johnny_Doe wrote: »

Thanks both, I'm here to learn and take advice and have learnt something new so many thanks for your advice!

The investment was in Aberdeen (now Henderson) Technology fund (now Henderson Global Growth)

https://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=PLTEC&univ=U&typeCode=FPLTECA

As you can see it's done well in the last 5 years, 120% up. I haven't seen any mention of dividends on the paperwork which is why I'm confused about how dividends work on funds? Or are they just reinvested automatically? I'll have another look..

Well that link isn't working for me right now (I seem to be having a network issue) , but most funds have one version that reinvests any income (an 'Acc" version) and one, an "inc' version that pays out income from dividends received from the shares.

EDIT Link working now. I see its an Acc. So thats it, no extra money to come.

Since most High Tech stocks dont pay much if any dividend, there may not be an Inc version for this fund, and it would seem to be pointless anyway. You buy Apple, Microsoft, Google, Tesla etc for growth, not dividends. (well, maybe thats not true for Mr Softy any more but in general thats the idea)

Malthusian

From the description of the performance I rather suspected this was going to be a Technology fund.

Unless it was part of a much wider portfolio (you didn't say) you would probably have cause for complaint if an IFA really recommended that you put your entire £3,000 investment in a single sector. However at this point it is probably too late to complain due to time-barring rules.

The example says nothing about the markets and everything about the importance of diversification. Your IFA (if that's what he was) thought that he could predict the markets and therefore putting an entire investment in a single sector which was bound to continue rocketing in value was genius. He turned out to be wrong. Thinking that you can predict the markets and therefore sitting in cash while you wait for the market to go down could equally lose you a large amount of money.

dunstonh

Those of us around in the 90s will remember that everyone was harping on about technology funds and stocks. The Daily Mail was telling pensioners to get out of their corporate bond funds which were performing poorly (they were not) and get into tech funds. They did that at 90% of the highest point. Today, we refer to such things as fashion investing and we still frequently see investors following fashions.

Single sector investing was common back then. The use of diverse sector allocated portfolios was something that larger investors did and multi-asset funds were seen as old fashioned and boring. Also back then, many funds had a £1000 to £5000 minimum investment amount.

Things are very different today. Dont let a 1990s poor quality recommendation set the level of expectation.

Deneb

I started investing in the late 90's when I inherited a small portfolio of stocks and shares from my mother. I thought it seemed a great idea to sell all the blue chip solid and steady investments to get in to this new tech boom. Wonderful, within a few weeks one tech fund being recommended by all the "experts" at the time had gone up so much, that had I sold it we could have completely paid off the mortgage we'd only had for a matter of months. But why sell when I could be even richer?

A few weeks later and I'd effectively halved the value of my original inheritance. It took nearly10 years to get back to where I'd started from, and I learnt a lot on the way.

I've done well since, no complaints, but slow and steady is my preference now, with not too much excitement. Just like my parents!

Thrugelmir

Johnny_Doe wrote: »

I am nervous because I invested (IFA advice) £3k at the top of the dot com bubble and it's currently at £2.5k 17 yrs later!! Not a great return I'm sure you'd agree?

Once lost capital is difficult to rebuild. A key lesson when investing. Too many people got sucked into Companies such as LastMinute.Com . Which of course was a total wipe out.

atush

dunstonh wrote: »

Those of us around in the 90s will remember that everyone was harping on about technology funds and stocks. The Daily Mail was telling pensioners to get out of their corporate bond funds which were performing poorly (they were not) and get into tech funds. They did that at 90% of the highest point. Today, we refer to such things as fashion investing and we still frequently see investors following fashions.

Single sector investing was common back then. The use of diverse sector allocated portfolios was something that larger investors did and multi-asset funds were seen as old fashioned and boring. Also back then, many funds had a £1000 to £5000 minimum investment amount.

Things are very different today. Dont let a 1990s poor quality recommendation set the level of expectation.

I started investing back int he 90's. And I made a lot of money in technology stocks. I lost some sure, but the winners more than paid for the losers.

But I didnt invest everything in one tech stock/fund, I diversified. So when baltimore went bust, Arm made sure I wasnt left with nothing? And I held other things as well that were contrarian at the time. Ie non tech like utilities and food/pharma.

The whole point of investing is to make money. and you generally dont do this if you invest all your eggs in one basket.