is 4% growth in a SIPP realistic?

System

If there are four stocks A,B,C and D that have returns A,B and C +10% and D +50% then the average return in the market is +20%. If an investor randomly selects one stock then he has a 1/4 chance of choosing each stock so his expected return is 1/4*10%+1/4*10%+1/4*10%+1/4*50% is 20%. With probability 3/4 he will get a return of +10%, which is less than the market return of 20%, and with probability 1/4 he will get a return of +50%, which is greater than the market return of 20%. His expected return of 20% is the same as the market return of 20%. It really is basic probability, which is essential for any proper understanding of finance.

dunstonh

We are not talking RNG though (well you are but it doesnt apply here). mazworld15 has put a US based tech bias on the selection with just one bank as a diversification

The names he has pulled out of the hat come from a hat that does not include every option.

Prism

Another way of putting that is that the investor has a 3 in 4 chance of getting +10% (underperforming) and only 1 in 4 of 50% (overperforming). The 20% gain is only possible by selecting all 4 stocks (a tracker), or some weighting of those 4 stocks that happens to return 20%. Or of course you could actively try and work out which of those stocks was the +50% one in advance.

The op is currently doing none of those things. I would say that they are in the realm of only a small chance of beating the market and a very significant chance of not. Also, made worse by the fact that the stocks chosen are not random.

System

Prism wrote: »

Another way of putting that is that the investor has a 3 in 4 chance of getting +10% (underperforming) and only 1 in 4 of 50% (overperforming). The 20% gain is only possible by selecting all 4 stocks (a tracker), or some weighting of those 4 stocks that happens to return 20%. Or of course you could actively try and work out which of those stocks was the +50% one in advance.

The op is currently doing none of those things. I would say that they are in the realm of only a small chance of beating the market and a very significant chance of not. Also, made worse by the fact that the stocks chosen are not random.

I was responding to the assertion that random choices would have lower returns, and I have shown that this is not the case.

dunstonh wrote: »

Random hit and hopes lacking any real structure tend to result in lower returns over the long term.

I am all for diversification (my portfolio is mainly global IT and ETF, and a bit of gold at the moment), but I am amazed that an IFA does not seem to understand the reason for diversification of a portfolio. A diversified portfolio reduces the variance of returns, it does provide a higher expected return than randomly chosen stocks.

mazworld15

JoeCrystal wrote: »

I thought that you need an IFA to sign off the transfer since the transfer need to go into SIPP that will get advice on what to invest so it beats the benefit from DB pension (I know you can still transfer since you only need an advice rather than positive advice)? Maybe you should have stuck with the DB pension instead and not to worry about investing in the first place.

Thats a whole other story I only managed it with help from people on here

https://forums.moneysavingexpert.com/discussion/5895113/ifa-gave-advice-but-wont-sign-declaration

mazworld15

Think am gonna do 30% the Vanguard one, 30% HSBC Global and 30% AJ Bell passive and 10% cash, is that balanced do you think?

mazworld15

Then am not gonna go near it for a year lol

bostonerimus

Over the last 30 years a well managed (ie you don't do much to it at all other than rebalancing) globally diversified portfolio of 60% equities and 40% bonds has produced slightly better than 8% return. So, yes, you can get more than 4% from investments....inside or outside a SIPP ignoring taxes. Of course you could also get far more or far less depending on the investments you choose. So the trick is not to necessarily maximize your return, but to maximize the probability that you will get the return you need to be successful.

Prism

Economic wrote: »

I was responding to the assertion that random choices would have lower returns, and I have shown that this is not the case.

No you haven't. Random choices of a few stocks have a high chance of lower returns as most stocks don't get the average return. Non random choice have a high chance of lower returns too. The only way to ensure you get the expected return is to own all stocks. The more stocks you own the closer you get to the average.

You really think that if I go out tomorrow and select lets say 10 totally random stocks and keep them for 10 years I should expect to get the market average return. Good job you aren't an advisor - I think you would have very few customers

greatkingrat

Prism wrote: »

No you haven't. Random choices of a few stocks have a high chance of lower returns as most stocks don't get the average return. Non random choice have a high chance of lower returns too. The only way to ensure you get the expected return is to own all stocks. The more stocks you own the closer you get to the average.

You really think that if I go out tomorrow and select lets say 10 totally random stocks and keep them for 10 years I should expect to get the market average return. Good job you aren't an advisor - I think you would have very few customers

No, I think that your mean return would be equal to the market return. The actual return you get might be more, it might be less. That is just basic mathematics.

That doesn't mean it is a sensible strategy, while the mean may be the same, the variance is much higher, so you are taking on unnecessary risk while not being compensated with higher expected returns.