DIY pension definition and related questions

aekostas

Deleted_User said:

aekostas said:

Any thoughts anyone about a reasonable annual return on regular contributions over 22 years? Thanks!

You can google for historic returns.

My point is, of what? What is a reasonable benchmark?

I got ca 3.95% over 22 years, according to my noddy calculation, and that includes the Covid-crash; last year (thus with fewer contributions on my part) it was ca 4.74% over 21 years.

[Deleted User]

aekostas said:

Deleted_User said:

aekostas said:

Any thoughts anyone about a reasonable annual return on regular contributions over 22 years? Thanks!

You can google for historic returns.

My point is, of what? What is a reasonable benchmark?

I got ca 3.95% over 22 years, according to my noddy calculation, and that includes the Covid-crash; last year (thus with fewer contributions on my part) it was ca 4.74% over 21 years.

Use your asset allocation to build an appropriate benchmark.  If your investments are 80% world equity and 20% gilts then use total real return for the world stock market and UK government bonds. Then apply the appropriate weights to get your personal benchmark. Subtract costs.  Thats what you should have been getting (or arguably a bit more due to rebalancing).  

And if you are not getting it, you should try to understand why and consider adjustments.  For example, you could try to cut costs.  Or, perhaps, you have too much home bias. 

When comparing your returns to the benchmark, make sure you are using time weighted returns: https://www.bogleheads.org/wiki/Calculating_personal_returns. Given your age and period of investing, you should have been quite aggressive and I would have expected higher numbers, maybe 8% or so, assuming you are not correcting for inflation.  Not sure why your annualised return would have dropped so much this year.  Each gained or lost percent is worth hundreds of thousands to you because of compounding. You are still young with lots of years ahead of you, so adjusting the course is well worth it. Read a few books, update your investment approach, write it down and execute.

Prism

aekostas said:

Deleted_User said:

aekostas said:

Any thoughts anyone about a reasonable annual return on regular contributions over 22 years? Thanks!

You can google for historic returns.

My point is, of what? What is a reasonable benchmark?

I got ca 3.95% over 22 years, according to my noddy calculation, and that includes the Covid-crash; last year (thus with fewer contributions on my part) it was ca 4.74% over 21 years.

To get an accurate view of your returns over 22 years you would need to have kept track of the date and amount of every single contribution you have made over that time. Ideally you would also have record of the total value of your investments just before each individual contribution. I doubt many people have kept those records, especially if they started when young and disinterested. For that reason I tend to treat peoples long term gain claims with a large pinch of salt, as you should with my next statement.

My annual return over 23 years is 7.6%. That is an approximation based on the fact that I have all of the contribution dates and amounts but not values along the way. The risk level has changed over the years which makes comparision difficult but it might roughly align to something like 80% equities / 20% bonds. 

aekostas

Deleted_User said:

 Given your age and period of investing, you should have been quite aggressive and I would have expected higher numbers, maybe 8% or so, assuming you are not correcting for inflation.  Not sure why your annualised return would have dropped so much this year.  Each gained or lost percent is worth hundreds of thousands to you because of compounding. You are still young with lots of years ahead of you, so adjusting the course is well worth it. Read a few books, update your investment approach, write it down and execute.

Yes, it likely that I wasn't aggressive enough (or maybe I am not classing the fund correctly). The drop is simple to understand I think: the entire pot is allocated to one fund, so the only explanation is that the unit price tanked; this is backed by my annual statement.

Thanks for the encouragement; I am changing course, but not radically: I will transfer to a riskier, reputable fund with lower costs, but still one fund, as I just don't have capacity to become fully DIY. When I started I was quite cynical and naive at the same time: I counted almost exclusively (in my head) on the value of the tax-relief; understood that I stood no chance of guessing right or really assessing what performs well in the long term; and relied on my trusted bank. I have a lot to blame myself for in this, but the commitment to an additional pension, however small and flawed, is I think a positive in my case.

Prism said:

To get an accurate view of your returns over 22 years you would need to have kept track of the date and amount of every single contribution you have made over that time. Ideally you would also have record of the total value of your investments just before each individual contribution. I doubt many people have kept those records, especially if they started when young and disinterested. For that reason I tend to treat peoples long term gain claims with a large pinch of salt, as you should with my next statement.

Thanks. My case is pretty simple, in that my pot started with zero and I have been feeding it the exact same amount every month since 1998; I have annual, rather than monthly statements. Also, I have been on the same fund all those years, so, other than my inexperience and piece-meal approach to this, I should have reliable enough data. My calculation may be a bit dodgy (I put the data in an online compound interest calculator and fiddled with the fixed rate until I hit a near enough total value), but the data are simple.

Many thanks to everyone who has helped me in this thread! Hopefully the information will come in handy to other folk too.

zagfles

aekostas said:

Deleted_User said:

aekostas said:

Any thoughts anyone about a reasonable annual return on regular contributions over 22 years? Thanks!

You can google for historic returns.

My point is, of what? What is a reasonable benchmark?

I got ca 3.95% over 22 years, according to my noddy calculation, and that includes the Covid-crash; last year (thus with fewer contributions on my part) it was ca 4.74% over 21 years.

You could look at the returns from mainstream pension funds, morningstar is a good site for this.

eg the Royal London stakeholder returned a bit under 5% pa from launch in 2001 to now so yours is about the same.

Current price 258.47, at launch on 4/6/2001 was 100. That's 19.5 years, so to work out annual return, it's

(258.47/100)^(1/19.5) -1 = 4.99%

https://www.morningstar.co.uk/uk/snapshot/snapshot.aspx?id=VAUSA0637Y&tab=13&InvestmentType=SA

Click on max on the graph.

This Aviva one is almost exactly the same, about 5%pa https://www.morningstar.co.uk/uk/snapshot/snapshot.aspx?id=VAUSA05VJN&tab=13&InvestmentType=SA

Mine did better, and other more risky investments would have done even better. Older pensions would have included ongoing advice fee in the charges (even if you didn't get ongoing advice) which would have dragged perfomance.

[Deleted User]

Just picking a different fund isn’t the best way to go about it.  Read a few books. A few hours invested in reading can return hundreds of thousands. I’d say its worth it.  

Here are some good ones:
1. https://www.amazon.co.uk/DIY-Pensions-Simple-Retirement-Planning-ebook/dp/B00B7QN8XM

2. https://en.m.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street

3. https://www.amazon.com/Rational-Expectations-Allocation-Investing-Adults-ebook/dp/B00KSPCY24

The third reference answers your question on what you should expect. 

You should define your risk and how to minimize it appropriately, asset allocation, strategy, appropriate home bias, investment policy and only then pick the best, most cost efficient investment vehicles to implement your policy. It can and often should be a single fund. Nothing’s wrong with that.

aekostas

Thanks for the (reassuring, I thought, thanks zagfles) reply. I think your figures do not take fees into account, whereas mine do.

Thanks also Mordko. Hundreds of thousands don't come into this for me, as my main pension is workplace and this is auxiliary and small. I can see benefit in reading, though, and I may well do so. But for now, I should stop the 1% rot.

zagfles

aekostas said:

Thanks for the (reassuring, I thought, thanks zagfles) reply. I think your figures do not take fees into account, whereas mine do.

Thanks also Mordko. Hundreds of thousands don't come into this for me, as my main pension is workplace and this is auxiliary and small. I can see benefit in reading, though, and I may well do so. But for now, I should stop the 1% rot.

For a small'ish amount using multi-asset funds like Vanguard LS or target retirement funds are fine IMO, probably as good as any pension via one of the big companies or advisers with lower costs. If the fund gets bigger then you might want to look into it in more depth. The monevator site is also worth a read.

Linton

aekostas said:

Thanks for the (reassuring, I thought, thanks zagfles) reply. I think your figures do not take fees into account, whereas mine do.

Thanks also Mordko. Hundreds of thousands don't come into this for me, as my main pension is workplace and this is auxiliary and small. I can see benefit in reading, though, and I may well do so. But for now, I should stop the 1% rot.

For any fund the published performance figures take into account the fund fees.  And for a pension like a stakeholder, I believe the published performance would also take into account the "platform" fees, the platform being provided by the fund manager and bundled into the fund fees. So you dont need to make an adjustment.