Trust fund curiosity

sjp999

10% inflation would have eroded the 10% returns in real terms unfortunately.

Cleo9990

Thanks bigadaj

I don't really understand what you've put I'm afraid but that sounds quite good to my untrained ear/eye!!!!????

I've probably got that completely wrong!

Cleo9990

Ah, just replied before reading your original reply.
Oh. That does not sound at all good.

I knew it was all too good to be true.
I've never been too lucky!

Thanks anyway......

Cleo9990

So the person who said that the original £2000 could now be possibly worth £63000 due to inflation has got that all wrong? I'm so confused! Sorry!

Eco_Miser

My parents bought a terraced house for £800 in 1951, so £2000 for a farm seems a good but not fantastic amount (agricultural land is cheaper than residential land), but it depends how big the farm was, and where it was situated.

A reasonable investment could be expected to grow at a few percentage points above inflation, depending on how much income was taken. It is possible that all the return over inflation was taken.
Inflation means the value in pounds goes up, but what it could buy stays the same, so maybe the £2000 then would buy the same as £63,000 would buy now.

A lottery win could be £10.

Cleo9990

Thanks for your reply... am still confused and feeling a lot less hopeful. Best to stop dreaming now and not get too carried away....x

takman

sjp999 wrote: »

10% inflation would have eroded the 10% returns in real terms unfortunately.

Inflation is pretty irrelevant to the OP's situation because all they care about is how much it has grown by over the years.

Even if the £2000 had grown by exactly the amount of inflation each year (which would be a real term growth of 0%). That would still mean that the £2000 would be worth almost £65,000 today. Which from the sound of it they would be over the moon to get one ninth of £65,000.

takman

Cleo9990 wrote: »

So the person who said that the original £2000 could now be possibly worth £63000 due to inflation has got that all wrong? I'm so confused! Sorry!

I'm not sure how much you understand about inflation; each year as you know the price of everything increases. So this means that you need more money to buy the same stuff. This effectively means that money is worth less each year because the same amount buys less things.

So £2000 in 1950 is worth just under £65,000 today due to inflation. If the money was invested so it increased by inflation each year it would mean that there would be £65,000 there today.

sjp999 was saying that if this had happened it would actually be worth any more than in 1950 due to inflation. But as i said above i'm sure this wouldn't bother you because there would be £65,000 to share around.

Cleo9990

Again, thankyou for the great advice. I do understand the basics of inflation but it had become confusing as advice seemed to be a little conflicting. It seems it may have grown to £65000 if purely linked to inflation and not invested but also it may be more depending. Also it could be a lot less or nothing as who knows what he's been taken or used or lived off already by our great uncle. Well I suppose we'll just have to wait and see and really in none the wiser, however at least I have more of an idea about how things work, rather than how this may all pan out. I'm not very good at waiting so this could be a long few months...
Any more thoughts gratefully received!

Malthusian

I said £63,000 because given that the income was paid out rather than reinvested, assuming it grew in line with inflation is a nice conversative assumption. It could have done better. Or it could have been invested primarily for yield and the capital only grew in line with inflation. Or it could have been invested badly - e.g. stuck in cash accounts for the last 60 years - and done worse.

And if the trustees had the ability to give not just income but capital to the great uncle, there could be nothing left.

£63,000 was taken from an inflation calculator so it includes the time when inflation was 10% per annum.

So what would have been good investments? I know nothing about stocks or shares! I'm just a teacher (not maths!) .... I suppose gold would be the one to invest in for big amounts?

The trustees wouldn't have invested in gold because gold provides no income for the great-uncle to live on. A diversified portfolio of stocks and shares would have provided income with the potential for the capital to grow at least in line with inflation.

However, the reason I haven't mentioned how much the stockmarket index returned since 1950 is because people didn't passively invest in the index in 1950, and it is impossible to speculate on how well the investments have done.

The lifestyle of the beneficiary is a more relevant clue. If he was receiving income only, then the amount the remainderpeople are due could be around 2-3 times what he received in a year. (Say income was 4% - 5% per annum, which would be normal - capital is 20-25 times the annual income, and 20-25 divided by the 9 remainderpeople is 2-3.) From the sound of it, what he received in a year was pretty modest.