What sort of realistic return?

kenno010

Thanks for the comments guys,

In a fairly safe investment portfolio what could I expect to achieve with the money? Has anyone got a portfolio of their own which they could make reference to?

Thanks

John

captainreckless

I'm no expert, but...

I think the problem here is what you mean by 'safe'. You could invest the lot in a diversified portfolio of funds that hold shares and bonds from around the world and reasonably expect to make, say, inflation +5% averaged out over the long term (decades rather than years). You'd also be taking on the risk of seeing something like a 50% fall in the value of your portfolio over the short term.

As already mentioned, you could also hold it all as cash in an NS&I account. Zero risk of your money being lost in the short term, but over time you would with 100% certainty lose out to inflation and end up with an amount of money that is worth less and less as the years go by.

bostonerimus

kenno010 wrote: »

Thanks for the comments guys,

In a fairly safe investment portfolio what could I expect to achieve with the money? Has anyone got a portfolio of their own which they could make reference to?

Thanks

John

It's impossible to answer your question, too many unknowns and too many answers...pieces of string, length etc.

Here my example, which is what I've done in the US for the last 30 years. 40% US equities, 20% international equities and 40 % US bonds has return an average of 8.5% annually. My rental provides 6% income and a capital gain of 5% a year fro the last 20 years. You can easily create some portfolios and back test them using historical returns.

TheTracker

kenno010 wrote: »

Thanks for the comments guys,

In a fairly safe investment portfolio what could I expect to achieve with the money? Has anyone got a portfolio of their own which they could make reference to?

Thanks

John

You have to educate yourself in what's "normal" in the market. See if it meets your risk appetite, or if you can mature your understanding of risk.

Markets are volatile. Even a cautious portfolio is likely to drop at least 10-15% some years in a mid term horizon. A moderate portfolio maybe 20-30% a few times a decade. It's this very pain that you are rewarded for longer term. For moderate risk portfolios you might be able to plan for 4% over inflation over 10-20 years, but you'll rarely have 4% in any one year. It'll be 20% drops and you need the commitment to continue investing when 'lows' happen. It will be 20% rises and you'll need commitment to continue investing at the 'highs'.

Also educate yourself about the real risks of property. Most experienced investors consider owning one or two properties far more risk than holding a broad basket of funds that sometimes drop 30%. That's probably surprising to BTLers.

jimjames

TheTracker wrote: »

Also educate yourself about the real risks of property. Most experienced investors consider owning one or two properties far more risk than holding a broad basket of funds that sometimes drop 30%. That's probably surprising to BTLers.

The thing is that most property investors have only experienced rising prices and drops are not as obvious as they are with shares as prices aren't published on a daily basis.

Between 1989 and around 1998 the UK property market was stagnant and dropped 50% in many areas. Many BTL investors either forget or have never experienced that situation. I find it quite curious that many posts here express concern about the level of the stock market being at a peak but then suggest that they'll buy property instead which is arguably at a far higher peak.

bostonerimus

jimjames wrote: »

The thing is that most property investors have only experienced rising prices and drops are not as obvious as they are with shares as prices aren't published on a daily basis.

Between 1989 and around 1998 the UK property market was stagnant and dropped 50% in many areas. Many BTL investors either forget or have never experienced that situation. I find it quite curious that many posts here express concern about the level of the stock market being at a peak but then suggest that they'll buy property instead which is arguably at a far higher peak.

I think these are good points, the BTL market certainly feels as if it's in a bubble. I've had a good experience with my BTL even through the 2008 crash, but I would not make BLT my first investment and I would not want to be aggressively mortgaged to buy one. Here is how I approached BLT.

1) I made sure I had substantial stock and bond investments first.
2) I looked at BTL as a diversifier
3) I bought a two family home.......I live upstairs and rent out the downstairs.
4) I used rent to prepay the mortgage on the whole house.
5) I bought a nice home in a college town so it's easy to rent. In 20 years it's only been unoccupied for 6 months and that was my choice so I could renovate.
6) I am not mean about maintenance and improvements to the rental. This has paid off in rising rents and almost continuous occupancy.

bigadaj

bostonerimus wrote: »

I think these are good points, the BTL market certainly feels as if it's in a bubble. I've had a good experience with my BTL even through the 2008 crash, but I would not make BLT my first investment and I would not want to be aggressively mortgaged to buy one. Here is how I approached BLT.

1) I made sure I had substantial stock and bond investments first.
2) I looked at BTL as a diversifier
3) I bought a two family home.......I live upstairs and rent out the downstairs.
4) I used rent to prepay the mortgage on the whole house.
5) I bought a nice home in a college town so it's easy to rent. In 20 years it's only been unoccupied for 6 months and that was my choice so I could renovate.
6) I am not mean about maintenance and improvements to the rental. This has paid off in rising rents and almost continuous occupancy.

The US market is very different though.

The U.K. Largely avoided the huge falls prevalent in May parts of the states, and indeed continental Europe, after the gfc. I would guess you weren't badly affected in Boston but look at places like Detroit, much of the mid west, the rust belt etc, nothing similar happened on the uk, or at least to the same extent. This probably leaves the uk more vulnerable to a potential crash I'd have thought.

Financing is also different, I'm not sure what the situation would be for btl, but for owner occupier the American in negative equity can simply had the keys back, whereas the uk bank would pursue the owner for the additional sums owed.

I, or many others, would be wary of letting out the basement or other part of the house but it has it's pros and cons I suppose.

In the uk at least, the people who have really profited from btl have used leverage to increase their portfolio, with associated risk of course. As the market turns then the upside becomes an equivalent downside and as this hasn't happened in Britain for a generation then many think it's impossible, with a higher risk of a greater crash.