Stocks & Shares tracker ISA Longer term

dunstonh

mustachio said:

eskbanker said:

mustachio said:
"Hopefully, you would not invest £10k in an S&P500 tracker (i.e. 100% of your investing) as that would be poor quality investing". You might want to re-consider what you are saying here by looking into it more. As a long-term investment (i.e.10 year plus) I think you will find that it compares very favourably unless you are looking at high risk ventures (which I am not).

You might want to consider reading dunstonh's signature at the foot of their posts, where you'll hopefully realise that you're conversing with a professional who knows way more about investing than you're ever likely to and who is probably rolling about on the floor laughing as we speak!

If the historical returns for the S & P 500 over say 10 years ago is a poor return than fair enough show me a better stocks and shares ISA. I am all ears.

As mentioned, the ISA has nothing to do with it and there are plenty of funds that have done better.   However, investing 100% into those would be wrong as well.
In every economic cycle there is a standout region/sector.  It is very rare for the same sector/region to be the best in the following cycle.     In the last cycle (on the basis of us entering a new cycle in 2020) US equity was the top performer.   However, the cycle prior to that it was one of the worst.         
You seem to be assuming that just because the S&P500 was best in the last cycle it will also be best in the next cycle.   It has happened but its not something you would be on.
You also have currency fluctuations to consider.   Sterling has fallen and that has pushed the value of global assets up.  When sterling starts to rise again, this will create a drag on global assets.   With a lack of diversifation and putting everything in a tech heavy index in one currency, you are taking higher risks.

Fair enough though at no point did I ever say I was investing 100% into anything  

Your first post did seem to indicate that.

mustachio

dunstonh said:

mustachio said:

eskbanker said:

mustachio said:
"Hopefully, you would not invest £10k in an S&P500 tracker (i.e. 100% of your investing) as that would be poor quality investing". You might want to re-consider what you are saying here by looking into it more. As a long-term investment (i.e.10 year plus) I think you will find that it compares very favourably unless you are looking at high risk ventures (which I am not).

You might want to consider reading dunstonh's signature at the foot of their posts, where you'll hopefully realise that you're conversing with a professional who knows way more about investing than you're ever likely to and who is probably rolling about on the floor laughing as we speak!

If the historical returns for the S & P 500 over say 10 years ago is a poor return than fair enough show me a better stocks and shares ISA. I am all ears.

As mentioned, the ISA has nothing to do with it and there are plenty of funds that have done better.   However, investing 100% into those would be wrong as well.
In every economic cycle there is a standout region/sector.  It is very rare for the same sector/region to be the best in the following cycle.     In the last cycle (on the basis of us entering a new cycle in 2020) US equity was the top performer.   However, the cycle prior to that it was one of the worst.         
You seem to be assuming that just because the S&P500 was best in the last cycle it will also be best in the next cycle.   It has happened but its not something you would be on.
You also have currency fluctuations to consider.   Sterling has fallen and that has pushed the value of global assets up.  When sterling starts to rise again, this will create a drag on global assets.   With a lack of diversifation and putting everything in a tech heavy index in one currency, you are taking higher risks.

Fair enough though at no point did I ever say I was investing 100% into anything  

Your first post did seem to indicate that.

Thanks for your message and I can see that you've put some thought into this.

The S & P is actually a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies and is not necessarily "tech heavy" (it existed long before the current tech boom).

This is straight from wiki:
The average annual total return and compound annual growth rate of the index, including dividends, since inception in 1926 has been approximately 9.8%, or 6% after inflation".

The figures above factor in the slumps and the growth periods over almost 100 years. 

kimwp

@dunstonh
I'm listening and hopefully learning! (And applauding your calm response!)

bowlhead99

mustachio said:

dunstonh said:

mustachio said:

eskbanker said:

mustachio said:
"Hopefully, you would not invest £10k in an S&P500 tracker (i.e. 100% of your investing) as that would be poor quality investing". You might want to re-consider what you are saying here by looking into it more. As a long-term investment (i.e.10 year plus) I think you will find that it compares very favourably unless you are looking at high risk ventures (which I am not).

You might want to consider reading dunstonh's signature at the foot of their posts, where you'll hopefully realise that you're conversing with a professional who knows way more about investing than you're ever likely to and who is probably rolling about on the floor laughing as we speak!

If the historical returns for the S & P 500 over say 10 years ago is a poor return than fair enough show me a better stocks and shares ISA. I am all ears.

As mentioned, the ISA has nothing to do with it and there are plenty of funds that have done better.   However, investing 100% into those would be wrong as well.
In every economic cycle there is a standout region/sector.  It is very rare for the same sector/region to be the best in the following cycle.     In the last cycle (on the basis of us entering a new cycle in 2020) US equity was the top performer.   However, the cycle prior to that it was one of the worst.         
You seem to be assuming that just because the S&P500 was best in the last cycle it will also be best in the next cycle.   It has happened but its not something you would be on.
You also have currency fluctuations to consider.   Sterling has fallen and that has pushed the value of global assets up.  When sterling starts to rise again, this will create a drag on global assets.   With a lack of diversifation and putting everything in a tech heavy index in one currency, you are taking higher risks.

Fair enough though at no point did I ever say I was investing 100% into anything  

Your first post did seem to indicate that.

Thanks for your message and I can see that you've put some thought into this.

The S & P is actually a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies and is not necessarily "tech heavy" (it existed long before the current tech boom).

By being an investment professional providing regulated independent advice for decades, we can presume he understands what the S&P500 is without needing to put 'some thought into it'

You say it's 'not necessarily tech heavy', but it's about 28% IT  (e.g. Apple, Microsoft, Visa) and about 11% communications  (google, facebook). So the 39% technology and communication is certainly heavy compared to a world index such as MSCI ACWI that has only 30% in those sectors (most of it coming from the US). Elsewhere in the developed world,  Europe ex-UK is about 10% IT, japan about 12.5%, with pacific ex-Japan and UK each about 1% IT.

An investment in the S&P puts over 22% of your money in just Apple, Microsoft, Google, Amazon Facebook leaving only three quarters of your money to be spread over the other 495 US-headquartered big companies, and nothing in smaller ones or in any of the thousands of companies elsewhere in the world. So, just because the US was an 'emerging market' in the 1920s when your records began and has had a recent tech boom, doesn't mean you would expect to get 10% a year from it going forward for the next couple of decades, and and it wouldn't be high quality investing to go 'all in' on one region that has a particularly high allocation to one or two sectors. As such, it's fair to say that it would be 'poor' investing to gamble on one area when there are loads of areas to choose from.

dunstonh

The S & P is actually a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies and is not necessarily "tech heavy" (it existed long before the current tech boom).

Over 30% of the index is IT (March 2000). 

The average annual total return and compound annual growth rate of the index, including dividends, since inception in 1926 has been approximately 9.8%, or 6% after inflation".

The figures above factor in the slumps and the growth periods over almost 100 years. 

For much of the 20th century, the US economy was an emerging markets economy with massive growth.    That is no longer the case.   So, comparing growth from 100 years ago to today is totally pointless.      What were the IT weightings in 1926?

When you go 100% into one sector/region, you are effectively saying that nothing else is going to be better than that area year after year after year.      No sector/region has ever been best continuously like that.

mustachio

Just to clarify once again not at any point have I said I was going "all in" or "100%" on the S & P or anything else for that matter.

As regards tech firms in the S & P if they all tank and lose their value then they will lose their S & P status (as you will know ) and will be replaced by more profitable firms from better sectors. For example this happened recently to Rolls Royce. 

bowlhead99"22% of your money in just Apple, Microsoft, Google, Amazon, Facebook" well you say that like it is actually a bad thing? These companies are more likely to be around for years to come and have done incredibly well and have proven to be good investments.

dunstonh "For much of the 20th century, the US economy was an emerging markets economy with massive growth.    That is no longer the case"
The US economy was the biggest in the 1920's and today it is still the biggest economy in the world and by a long way. Will that change? Possibly though to describe it as an emerging market is inaccurate. 

kimwp

@mustachio
 If a company has done really well, it might not be a good investment (depending on your definition) because it might have peaked.

Also emerging markets economy means that it has been driven by emerging markets, not that it is a new economy as you have (mis)interpreted.

mustachio

kimwp said:

@mustachio
 If a company has done really well, it might not be a good investment (depending on your definition) because it might have peaked.

Well there is a saying "time in the market beats timing the market". Investing in index funds such as this is really quite the opposite to all of that "buying low selling high" (which is not really what index funds are about). 

Sure you can get lucky like I did with my shares in Zoom though overall companies like Apple, Microsoft, Google, Amazon, Facebook.....they will be around for a long while and they haven't peaked. 

dunstonh

dunstonh "For much of the 20th century, the US economy was an emerging markets economy with massive growth.    That is no longer the case"
The US economy was the biggest in the 1920's and today it is still the biggest economy in the world and by a long way. Will that change? Possibly though to describe it as an emerging market is inaccurate. 

You are mistaking size as a measure of status.

It is not inaccurate to describe the US of 80-100 years ago as an emerging economy.  It is a developed economy today.     The gains of much of the 20th century came about because of the way the US moved towards a free market developed economy from being an emerging one.   Plus, it had the "luck" that the worlds major developed economies destroyed each other during WW1 and WW2  and the US filled the gap.

Sure you can get lucky like I did with my shares in Zoom though overall companies like Apple, Microsoft, Google, Amazon, Facebook.....they will be around for a long while and they haven't peaked. 

You mean like AOL, Yahoo and many others that were big in their day.

Tech is fickle.  It has fashion risk and development risk.  Stand still and lose market share.   Become unfashionable and you lose market share.  Let a Chinese alternative join the market and you lose market share.

bowlhead99

mustachio said:

As regards tech firms in the S & P if they all tank and lose their value then they will lose their S & P status (as you will know ) and will be replaced by more profitable firms from better sectors. For example this happened recently to Rolls Royce. 

Yes - between March 2000 and October 2002, there was an 18 month period in which the Nasdaq index fell 78% from its peak, meaning it would have to grow to about 4x its new lower value to get back to where it was. If the heavy constituents making up a large part of the index tank and lose their value (causing you to lose a large part of your value as an investor in the index), then it is not much comfort to sit there and see it and think, "ah don't worry there will be other companies added to the index and we just have to wait for them to grow 4x their value and then I am back to where I was".   The 5 companies I mentioned make up 46% of the NASDAQ100 and 22% of the S&P500. 

bowlhead99"22% of your money in just Apple, Microsoft, Google, Amazon, Facebook" well you say that like it is actually a bad thing? These companies are more likely to be around for years to come and have done incredibly well and have proven to be good investments.

The fact that they have proven to have been a good investment in the past does not mean they will be the best thing to hold as a massive percentage of the portfolio going forward. Yes, with hindsight buying Microsoft or Amazon or Google when they were worth $50m each has been a great thing now they are worth a trillion each. If you are buying them at a trillion and hoping they will get the same percentage growth over the coming few decades and be worth twenty quadrillion each, you may be disappointed.

So, yes I do say putting a fifth of your money in five companies which happen to have done well in the past and all the rest of your money in the same market is 'a bad thing' if you were looking to come up with a balanced investment portfolio to face the unknown returns of the global markets.  Why 5% in Amazon but 0% in Alibaba? Why 5% in Google but 0% in Tencent? Why 5% in Apple but 0% in Samsung? Why 1% in Procter & Gamble but 0% in Unilever? Why 1% in Johnson & Johnson but 0% in Glaxo? Why 0.5% in Exxon but 0% in Shell and Total and BP and Aramco put together? Those are all bold calls and you would need a good justification to do it. 

Just to clarify once again not at any point have I said I was going "all in" or "100%" on the S & P or anything else for that matter.

Understood, and that is completely fine. 

But your initial general post had given an example of dumping some money into the ISA and buying a specialist index with it. As the forum is full of inexperienced investors wondering how to save or invest their money, it's quite common for someone like an IFA to point out that if you did that (put all your 10k into one regional stockmarket index) it would be poor quality investing.

If you say it's only an example because you were trying to work out how an ISA works and the actual investment chosen is completely irrelevant to that, then that's all fine and there is nothing to discuss.

But if you double down on it and are defensive and say 'no it's not poor investing it's clearly the best way to have invested for the last 100 years' then you could expect that the wiser heads on the forum would point out the flaws in the logic .  Not because they think you personally have no right to hold your views, but because they would not want newbie investors to be suckered in by such posts and the US-centric blogs they find online and think it was actually a recommended way for a normal person to invest.