What return are you targeting?

Aminatidi

tacpot12 wrote: »

I'm targeting a return of 6.1% pa with my retirement portfolio.

Perfect and a very precise number - how did you arrive at that please?

Audaxer

I am retired, but if I was young and at the accumulation stage, I wouldn't be too bothered about the average rate of return over the next 10 years. Although it is expected to be a lot lower than the last 10 years, that should be an advantage if you have say 30 years or more to retirement, as you could be buying shares/units at lower prices over the next 10 years than if the bull run continues for another 10 years.

bowlhead99

DrSyn wrote: »

Prism

Thank you for your reply. Those funds I mentioned come in different blends of equity/bond splits. It will indeed be interesting to see how these different blends compare with those mentioned by the OP when the next crash/bear market occurs.

It still won't be on-topic for the thread (which is about how people decide what level of return should be sought). Noting that multi asset funds come in different risk levels which will achieve different levels of returns, does not answer the question of how people decide what sort of return they need to get.

bowlhead99
I really am interested in finding out why the OP did not consider or mention them for at least part of their portfolio. The OP reasons may indeed be those mentioned in your post or they may be different.

They did not mention buying any funds for their portfolio at all. Why should they mention whether they might or might not consider multi asset funds for their portfolio? It's an irrelevance to the question at hand.

Their post was about the fact that:

a) trustnet can be used to view historic 10-year-or-more returns for different types of assets;

b) when this was done, different asset mixes would produce different results over long time periods. This helps us learn how asset allocation can impact return;

c) as a simple example of 'different results' which might be observed, some popular capital preservation trusts (an average of popular products in the sector) gave 6.6% and lowish volatility;

d) for another simple example, adding a 100% equity fund increased returns and volatility over the period - by an unspecified amount ; the exact fund or amount is not relevant, just the concept that different returns are available from different asset classes;

e) it is clear that different levels of return are obtained from different asset types ; what is not clear from trustnet, portfolio visualizer et al is how people will in practice determine what level of return is necessary for them to achieve to meet their objectives, so that they can target their investing to that level of returns rather than take unnecessary risks using the mindset that 'it would be nice to get a bit more'.

(a) to (e) are the salient points made in the OP. At no point did he tell us what he is going to put into his portfolio. Now he has learned a bit about the effects of asset allocation he is simply trying to get to grips with how people determine what level of return they even need. For example, as in Herbalus's response, work out what you think you will need to spend in the future and when, look at how much you have available to invest now, and calculate from that what level of return it might require.

As he is trying to decide what level of returns he needs, and the level of risk he might need to take to get it (or what risk he might be comfortable taking), there is no point in him racing onwards to 'considering or at least mentioning passive-based multi-asset funds for at least part of his portfolio'. As you said yourself, all the fund ranges you mentioned are available in several different levels of risk which could be expected to produce different levels of return. So they do not get closer to an answer of what level or risk or return is suitable for his objectives.

He still needs to determine what risk and volatility he is willing to take in pursuit of his objectives, or what his return target is, before he could consider whether VLS 100 or 40, or L&G MI 7 or 3, is more suitable. But his OP was not about the strengths and weaknesses of specific named products. It was about different asset allocations producing different returns (albeit the time period quoted in the example was a flattering one).

Ergo, multi-asset funds are not conspicuous by their absence from the post. It is like someone coming on here and saying 'a lot of headlines in the industry recently have been about how Woodford fund has not been doing very well, that's been an interesting topic to me, so I wonder why he didn't mention considering definitely avoiding Woodford'.

OP's question is not about what are the right tools for the job, it's about acknowledging that different tools are available which will deliver different results and being curious about how we decide what the job is. That should be decided a good way in advance of actually appointing the builder or plumber or electrician or gardener to come around to our house and do the job.

[Deleted User]

Aminatidi wrote: »

It has got me thinking how much I need to return vs. how much I want to return

I don't have an exact number, because it depends on some predictions about the future which are outwith my control.

As a 30 something, I simply contribute as much as I'm reasonably comfortable with to a salary sacrifice pension; even if the interest rate in the pension is disappointing in the end, it's still a good strategy to my mind due to matched contributions and tax efficiency.

Wider factors which directly affect how much I need could change, such as:

1. Salary
2. Interest from Shares/Savings
3. How much interest needs to be paid on a mortgage
4. What benefits I'm entitled to on retirement
5. Retirement age

I have played around with a financial planning tool to help determine roughly how much I need to retire if I want income X a month at retirement age Y, and consequently the interest needed to achieve that, but I accept it would require periodic review: the assumptions I needed to enter helped me realise that.

Aminatidi

@CluelessNonGardener I'm in a works Royal London scheme and contribute the maximum I can to ensure my employer also contributes the maximum.

It's interesting psychologically as because I don't ever see the money I don't think about it the same as I do the money I put into my ISA or General Investment Account

Sea_Shell

We're working on needing a minimum return of 3% across our whole portfolio, anything over that will be a bonus!!

bostonerimus

In addition to "how much return do I need?" the other parts of the question are "how much do I need to invest?" and " how much income do I need?"

In all my planning I start from a well defined number for my income which I get by keeping a budget. If I can reduce my budget this also allows me to invest more....so that's a strategy that gives a double benefit. I use a conservative return value that has a normal distribution and has a mean 1% above inflation to stress my plan and also more optimistic values of maybe 5% or 6% returns...my actual 30 year annual average return is 8.5%. My portfolio is a few broad index trackers so my model returns and statistics are well approximated by those indexes. I avoid the costs and variability (both good and bad) of actively managed funds and ITs.

I have been able to reduce my need for retirement income by paying off my mortgage while I was working and having a rental apartment in my house that provides income. This along with a small pension covers my income and allows me to keep my investment strategy aggressive without any worries. So I don't need much return because I have used complimentary strategies to produce income.

Thrugelmir

Over the years targeted 2% above the RPI inflation rate (after allowing for costs). Anything above will be a bonus. Setting a low hurdle means that one isn't driven to take excessive risk to achieve the objective. Investing is a long term game. Short termism is driven by noise not underlying fundamentals.

Aminatidi

Quite a timely article in Trustnet on this

https://www.trustnet.com/news/7457616/investors-forecast-returns-of-10.7--millennials-expect-more-

bostonerimus

The obvious answer to how much return might be “as much as possible”, but thats a little simplistic. You should be looking to maximize the probability that your return will be sufficient to meet your financial goals.

I have a pretty simple 75/25 equity to bond index tracker portfolio and so my goal is to be within the 30 year historical average +/- 3 standard deviations. Anywhere in there will be ok for me and the chances of being outside that are pretty small.