Pension recovery performance 2020

Another_Saver

Cus said:

If you are a passive investor investing solely in equity indices, how do decide which to choose?  Do you go with a truly global properly weighted index, or do you do research and choose regions etc. If so, would that be my classified as timing the market, making active decisions etc?

Ah that old bug. 
Well firstly to suggest there is an ideal of passive investing you should even aim for is a misnomer. I think the term was probably coined by the active industry to denigrate indexers. 
Bogle made it easy for Americans - total us stock market and total us bond market.

Since then, the idea that everyone ought to/should have a globally diversified portfolio has taken hold. I don't think that seeing as investing as owning an arbitrary idea.ld what you should own is really investing.
 Bogle didn't buy this and neither did Buffett, as his partner Munger would say, any idiot can diversify.

Invest in what you want, just try and have a good reason for it, and if you don't know or care then just buy the world.

Another_Saver

Deleted_User said:

Another_Saver said:

Deleted_User said:

Another_Saver said:

Dividends can't be manipulated but they can be overpaid or underpaid and the reasons for that can be manipulative. That's why I prefer valuing by the dividend yield at an index level, historically it has been a baseline predictor of the real total return over the next 10 years so you can plan around at least that return.

Dividends are somewhat related to value but today are a very poor indicator of anything.  As @randompenitent points out, US companies caring about shareholders pay them in the form of share buybacks.  That’s what we prefer as shareholders for taxation reasons but is otherwise no different from dividends.  Also, the cult around dividends in some countries  has created a strong  incentive to borrow (at the current cheap rates) and keep increasing the dividends even as profits fall.  That’s not a good indicator of long term returns.   On the other hand companies like Berkshire Hathaway have delivered great returns without ever paying a dividend. 

Your approach would have kept you out of the US market over the last decade. How did that work out for you? 

...
Berkshire is unique, but they still own dividend paying stocks and companies, and Buffet has commented on why it is appropriate for them and not for Berkshire so long as the conglomerate believes it can generate more than a dollar of value per dollar retained. At the index level the marginal utility of retained earnings necessarily tends to 0, otherwise the dividend yield would be 0 and that would somehow make earnings and so the economy grow by more than any hypothetical/potential dividend payout. Newspapers and tobacco aren't exactly going to grow by withholding dividends.

Share buybacks are newish, becoming popular in the 80s and essentially reward existing owners the by the same amount as an equal dividend. Shiller, author of the CAPE ratio has created a payout adjusted CAPE, but the data very closely match the normal CAPE (http://www.econ.yale.edu/~shiller/data.html).
As for borrowing I'm not aware of examples of dividend payout ratios exceeding 100% at the level of a national index, though obviously corporate debt is very high due to negative real interest rates and earnings can be manipulated to make the payout ratio seem lower.
Going through annual dividend yield and returns data for the UK and US, the dividend yield is almost always below the real total return of the next 10 years. I see it as a conservative return estimate to plan with, not a return predictor as the inverse of the CAPE, the cyclically adjusted earnings yield may be considered as.
As for the US, no one expected after the dual crashed of the 2000s, that the S&P 500 valuation could stay that high for that long, no one expected after that decade, a decade of 7.2% real earnings growth. Besides which, the UK and US yields were much closer then, 3.2% and 2% respectively than they are today, the FTSE all share started the year on 4.1%, the S&P on 1.8%.

Thats all true, except that after a poor decade on the stockmarket in the zeros, it would have been reasonable to expect the US to bounce back.  Just like after a poor decade for value, I wouldn’t bet against value right now. So “nobody expected” isnt accurate.
...but my point was that dividend is an easy but poor screen for anything. There are much better ways to screen for value, quality and profitability. 

I'm talking about investing in national indices or higher where yield is a salient and valid comparison metric.

Re the US, of course after a net zero decade you might hope for better in the next decade but I don't believe anyone realistically expected the US to continue with a 2% dividend yield for another decade, uprate by 1.8% a year and experience earnings growth 7% on top of inflation (I'm using calendar year start 2010 to end 2019, I would draw the same conclusions if using 1/1/2010-present). Everywhere except Emerging Markets did better in the 2010s then the 2000s.

Thrugelmir

Another_Saver said:

Cus said:

If you are a passive investor investing solely in equity indices, how do decide which to choose?  Do you go with a truly global properly weighted index, or do you do research and choose regions etc. If so, would that be my classified as timing the market, making active decisions etc?

Bogle made it easy for Americans - total us stock market and total us bond market.

Bogle sold the concept of tracking the S&P 500.  Very different to the total market which at the time extended to many thousands of companies. Far from a total investment solution. 

[Deleted User]

Cus said:

If you are a passive investor investing solely in equity indices, how do decide which to choose?  Do you go with a truly global properly weighted index, or do you do research and choose regions etc. If so, would that be classified as timing the market, making active decisions etc?

I buy regions because a) its a large portfolio b) its more tax efficient and c) its a bit cheaper and d) global indices were not available when I set up the portfolio, at least not for the price I wanted to pay. 

I do use some cost efficient ETFs to buy factor investing indices, but only for around 20% of N American market. 

I also use active investing for some of my fixed income. The regional allocations are fixed.  I also get discounted shares and options in my own company but keep that to a small fraction of the overall portfolio. 

Don’t particularly care what its called. I care that the overall cost is around 10bp and that its diversified (covers the whole world) and aligned with my IPS. 

Linton

Another_Saver said:

Cus said:

If you are a passive investor investing solely in equity indices, how do decide which to choose?  Do you go with a truly global properly weighted index, or do you do research and choose regions etc. If so, would that be my classified as timing the market, making active decisions etc?

Ah that old bug. 
Well firstly to suggest there is an ideal of passive investing you should even aim for is a misnomer. I think the term was probably coined by the active industry to denigrate indexers. 
Bogle made it easy for Americans - total us stock market and total us bond market.

Since then, the idea that everyone ought to/should have a globally diversified portfolio has taken hold. I don't think that seeing as investing as owning an arbitrary idea.ld what you should own is really investing.
 Bogle didn't buy this and neither did Buffett, as his partner Munger would say, any idiot can diversify.

Invest in what you want, just try and have a good reason for it, and if you don't know or care then just buy the world.

You cant have it both ways.    We are repeatedly told that you cant outperform The Index in the long term.  If that is true either your choice of something different to a global index is sub-optimal or perhaps you have some other reason than performance  for making the choices you do.

I am happy to accept that either that you can out-perform the index in the long term or that there may be good reasons that outweigh performance for choosing an allocation other than the index. I dont think you can disagree with both claims.

Another_Saver

Linton said:

Another_Saver said:

Cus said:

If you are a passive investor investing solely in equity indices, how do decide which to choose?  Do you go with a truly global properly weighted index, or do you do research and choose regions etc. If so, would that be my classified as timing the market, making active decisions etc?

Ah that old bug. 
Well firstly to suggest there is an ideal of passive investing you should even aim for is a misnomer. I think the term was probably coined by the active industry to denigrate indexers. 
Bogle made it easy for Americans - total us stock market and total us bond market.

Since then, the idea that everyone ought to/should have a globally diversified portfolio has taken hold. I don't think that seeing as investing as owning an arbitrary idea of what you should own is really investing.
 Bogle didn't buy this and neither did Buffett, as his partner Munger would say, any idiot can diversify.

Invest in what you want, just try and have a good reason for it, and if you don't know or care then just buy the world.

You cant have it both ways.    We are repeatedly told that you cant outperform The Index in the long term.  If that is true either your choice of something different to a global index is sub-optimal or perhaps you have some other reason than performance  for making the choices you do.

I am happy to accept that either that you can out-perform the index in the long term or that there may be good reasons that outweigh performance for choosing an allocation other than the index. I dont think you can disagree with both claims.

It depends what index you are talking about and yes, long term out performance is possible, it just becomes increasingly unlikely the longer the term and if you want consistent periodic outperformance i.e. every year and over a long term, say 30 years. As Peter Lynch said, if you know about an industry you can do well out of identifying trends in it. I know the UK is materially undervalued and that the FTSE 250 has experienced significant outperformance because of net acquisitions whereas most national stock market indices lag their country's GDP by about 2% a year because of diluting existing shareholder's ownership, which you can measure by comparing index market cap and index price. However even over very long periods, the last 40 years other factors - a significant rise in valuations and a rise in the share of GDP occupied by listed company earnings - has countered that effect.
I don't see this FTSE 250 phenomenon running out during the accumulation phase of my investing lifetime. I also think in the UK having some global allocation makes sense. What I end up at because it's simple, balanced and includes all of the above is 1/3 FTSE 100, 1/3 FTSE 250, and 1/3 global index funds (though half that was split between VHYL and VVAL and now I need to find somewhere else to put the VVAL money).
Everyone in this forum has their own, different portfolio for their own reasons.
The question was about how to invest passively, not returns.

bownyboy

Up 9.17% here YTD. Both ISAs and SIPPs are in VLS60. Quite boring, but slow and steady. 

[Deleted User]

“  I know the UK is materially undervalued, etc” 

You don’t actually “know” any of that. What you know is that the current multipliers are low compared to other jurisdictions. Mr Marker knows it too.  Also, both of you know the reason for that.  You are just assigning a different probability to Brexit negatively impacting companies in FTSE 100/250... And that industries in which UK companies are overweight will under/outperform. You could be right but you don’t “know”, you are guessing, betting that the known risks would not materialize.  Betting against Mr Market isn’t easy.  

Funny thing... Most investors think their home markets are undervalued and have the best potential for growth, not just the Brits. The Germans do. And the Yanks. And the French. And Canadians. And Chinese. They can’t all be right. 

[Deleted User]

“ most national stock market indices lag their country's GDP by about 2% a year...”

Source? I find this very surprising.  Have not seen anything like this in practice.  Stock markets are weakly correlated to GDP for several reasons. And generally they have outperformed anaemic GDP growth in the developed world. 

Another_Saver

Deleted_User said:

“  I know the UK is materially undervalued, etc” 

You don’t actually “know” any of that. What you know is that the current multipliers are low compared to other jurisdictions. Mr Marker knows it too.  Also, both of you know the reason for that.  You are just assigning a different probability to Brexit negatively impacting companies in FTSE 100/250... And that industries in which UK companies are overweight will under/outperform. You could be right but you don’t “know”, you are guessing, betting that the known risks would not materialize.  Betting against Mr Market isn’t easy.  

Funny thing... Most investors think their home markets are undervalued and have the best potential for growth, not just the Brits. The Germans do. And the Yanks. And the French. And Canadians. And Chinese. They can’t all be right. 

I'm taking a contrarian approach that minimises currency and geopolitical risks, and the risk of knowing sweet FA about the future of the world but believing that this island has plenty of history left in it. I know the UK's current valuation is historically very, very cheap. Aside from 2008/9 and the odd crash, the cheapest in my lifetime. I also know the UK's current valuation is very cheap by current global standards. Even if it wasn't, I would probably still be at least 50% in the UK.
I don't agree with your second point, I see far more negative UK sentiment in the forum than I do positive, and not just because of the FTSE 100's make-up. The US for example does not nearly follow the same pattern. I think according to the St Louis FRED some 35% of the US stock market is owned overseas, in the UK it's 55% (ONS ownership of UK listed shares). China is experiencing capital flight, Germany with their smaller stock market and Mittelstand - preference for direct ownership - are not as comparable.

I don't see everyone else with their own portfolio attracting criticism or being asked to justify doing anything other than owning a global index fund.