Pension recovery performance 2020

Another_Saver

Another UK example, the FTSE 100's opening market cap in December 1985 was £164bn, at the end of 2019 it was £1,888.878bn. A CAGR of 7.45%, whereas the index grew 5.05% almost the same as GDP. Apologies I overstated dilution as ~2.4% earlier, this works out at 2.23%.
The mid 80s appear to have been a low point for both the UK and US in terms of % of GDP occupied by the stock market hence why the market cap had so much room to grow ahead of GDP. Some of the difference may also be explained by shuffling co's with the 250 at the bottom though I don't see this explaining such a large divergence between market cap and index price.

L9XSS

I’ve seen about a + 4.5% across my SIPP in the last 5 months. Currently a mixture of Vanguard LS plus some EFTs in Asia, North America and S&P 500. Combined with a Small workplace DC pension pot (circa 35k) and a DB pot that can payout from 55 years of age I’m relatively happy with my position as I’m move towards 54 years of age.
lots of options to consider.

[Deleted User]

Another_Saver said:

Deleted_User said:

Another_Saver said:

Deleted_User said:

“ 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. 

I didn't say correlated.
Markets are a human system, to suggest they are so efficient that to try and do something else is silly... Well I think that's a silly idea.
I have explained how even over the recent long term, uprating (or positive speculative return) and listed companies expanding the share of GDP they occupy have cancelled out this effect. Neither of those should be relied on indefinitely.

Source: https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.researchaffiliates.com/documents/FAJ-2003-Two-Percent-Dilution.pdf&ved=2ahUKEwiLz4Dz_bbtAhUOfMAKHe7kBDUQFjAAegQIAhAB&usg=AOvVaw3k73yZYUiPErU7pmTxLLQD

At the level of a sufficiently broad and large national index, stock returns are a function of:
Dividend yield and capital growth

Capital growth is a function of:
Inflation/change in price level

Population growth

Capital dilution/concentration

Change in valuation/rerating/

Stock market share of GDP expansion/contraction

Real productivity growth (real GDP per capita growth)

Unfortunately the UK has been tending towards an extreme example like Hong Kong or Singapore of a stock market that has close to nothing to do with the economy it is in. The FTSE 100s biggest mining company Rio Tinto for example pay most of their tax in Australia, have essentially negligible operations in the UK, I would guess that a very small amount of their sales, directly or indirectly are to the UK, and I suspect they are more than the UK average 55% foreign-owned.
However this is true, to varying degrees, of almost every company and every stock market in our globalised, internationally trading world.

Same thing. The reference does not claim that the index lags GDP growth by 2%, so it does not support your assertion. The reference talks about earnings growth.  That’s not what the index returns.  Firstly, a large chunk of the economy is not traded on the stock market and is not reflected in the index.  Secondly, earnings to price ratio has been going down for a looong time now.  Thirdly, the paper is dated.  It talks about a 100 year period and chooses to discount a decade.  Well, we are 20 years later. That’s 30 years’ worth of extra data vs the 90 year period they considered.   Over the recent decades buybacks in the US have outpaced share emission. The paper is dated on this issue as well.  

In reality, returns on major country indices have outpaced GDP growth over sufficiently long periods of time.  That’s a fact.  Does not matter what papers say - and they don’t actually say that indices return less than the GDP growth.
If you include dividends then of course the total return on almost all national stock indices will outpace that economies GDP growth. The actual indices have lagged GDP over the very long term. That is a fact. I don't know where you have gotten yours from or how you explain yours. The reasons matter, how the markers work matters. They do actually say that as I explain further below.

This reference plots S&P 500 return vs GDP growth. https://www.bloomberg.com/opinion/articles/2020-06-09/stock-market-has-almost-always-ignored-the-economy

Yes it does, again I have never said anything about correlation.
The paper answers all of your points.
A stock market index's growth cannot exceed the dividend and earnings growth of the companies indefinitely. They have included re rating. The paper's age does not make it irrelevant - double entry book keeping is centuries old but still relevant. Since 1985, the FTSE 100 has diluted at ~2.4% pa, coincidentally offset by the same amount of expanding relative to GDP. I will try and find similar data for the S&P 500.

Firstly, you don’t understand the word “correlate”.  If you are claiming a relationship with index returns lagging gdp growth by a constant percentage, thats positive correlation. 

Secondly, you chose to ignore the factual evidence.  The link I provided has a plot which shows that in the US returns have weak correlation with GDP.  Not only that, over long term returns have beaten GDP. By an awful lot. 

Thirdly, you make claims as if they are facts. Your claim that return growth cannot outpace dividend growth is not based on empirical evidence.  We”ve seen the opposite over the whole period of stock market existence.  

Last but not least... Here is another paper. Makes a clear point that actual historic returns are not correlated to GDP growth.  You do claim correlation, even if you don’t understand the word.  The paper claims that there is correlation to expectations of GDP growth but thats very different.  http://webdesign.prosperexperiential.com/frameglobal/wp-content/uploads/2018/11/GDP-Growth-and-Equity-Returns-Schroders-2013.pdf

[Deleted User]

Another_Saver said:

Another UK example, the FTSE 100's opening market cap in December 1985 was £164bn, at the end of 2019 it was £1,888.878bn. A CAGR of 7.45%, whereas the index grew 5.05% almost the same as GDP. Apologies I overstated dilution as ~2.4% earlier, this works out at 2.23%.

1. You did not provide a reference.
2. When you say “the index grew 5.5%”, are you quoting total return including inflation ? Total return includes dividend reinvestment and compounding. That’s what you need to use to compare like with like (or almost like with like).  In a perfect world you would be comparing total stock market return in real  terms to real GDP growth.

Another_Saver

Deleted_User said:

Another_Saver said:

Deleted_User said:

Another_Saver said:

Deleted_User said:

“ 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. 

I didn't say correlated.
Markets are a human system, to suggest they are so efficient that to try and do something else is silly... Well I think that's a silly idea.
I have explained how even over the recent long term, uprating (or positive speculative return) and listed companies expanding the share of GDP they occupy have cancelled out this effect. Neither of those should be relied on indefinitely.

Source: https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.researchaffiliates.com/documents/FAJ-2003-Two-Percent-Dilution.pdf&ved=2ahUKEwiLz4Dz_bbtAhUOfMAKHe7kBDUQFjAAegQIAhAB&usg=AOvVaw3k73yZYUiPErU7pmTxLLQD

At the level of a sufficiently broad and large national index, stock returns are a function of:
Dividend yield and capital growth

Capital growth is a function of:
Inflation/change in price level

Population growth

Capital dilution/concentration

Change in valuation/rerating/

Stock market share of GDP expansion/contraction

Real productivity growth (real GDP per capita growth)

Unfortunately the UK has been tending towards an extreme example like Hong Kong or Singapore of a stock market that has close to nothing to do with the economy it is in. The FTSE 100s biggest mining company Rio Tinto for example pay most of their tax in Australia, have essentially negligible operations in the UK, I would guess that a very small amount of their sales, directly or indirectly are to the UK, and I suspect they are more than the UK average 55% foreign-owned.
However this is true, to varying degrees, of almost every company and every stock market in our globalised, internationally trading world.

Same thing. The reference does not claim that the index lags GDP growth by 2%, so it does not support your assertion. The reference talks about earnings growth.  That’s not what the index returns.  Firstly, a large chunk of the economy is not traded on the stock market and is not reflected in the index.  Secondly, earnings to price ratio has been going down for a looong time now.  Thirdly, the paper is dated.  It talks about a 100 year period and chooses to discount a decade.  Well, we are 20 years later. That’s 30 years’ worth of extra data vs the 90 year period they considered.   Over the recent decades buybacks in the US have outpaced share emission. The paper is dated on this issue as well.  

In reality, returns on major country indices have outpaced GDP growth over sufficiently long periods of time.  That’s a fact.  Does not matter what papers say - and they don’t actually say that indices return less than the GDP growth.
If you include dividends then of course the total return on almost all national stock indices will outpace that economies GDP growth. The actual indices have lagged GDP over the very long term. That is a fact. I don't know where you have gotten yours from or how you explain yours. The reasons matter, how the markers work matters. They do actually say that as I explain further below.

This reference plots S&P 500 return vs GDP growth. https://www.bloomberg.com/opinion/articles/2020-06-09/stock-market-has-almost-always-ignored-the-economy

Yes it does, again I have never said anything about correlation.
The paper answers all of your points.
A stock market index's growth cannot exceed the dividend and earnings growth of the companies indefinitely. They have included re rating. The paper's age does not make it irrelevant - double entry book keeping is centuries old but still relevant. Since 1985, the FTSE 100 has diluted at ~2.4% pa, coincidentally offset by the same amount of expanding relative to GDP. I will try and find similar data for the S&P 500.

Firstly, you don’t understand the word “correlate”.  If you are claiming a relationship with index returns lagging gdp growth by a constant percentage, thats positive correlation. 

Secondly, you chose to ignore the factual evidence.  The link I provided has a plot which shows that in the US returns have weak correlation with GDP.  Not only that, over long term returns have beaten GDP. By an awful lot. 

Thirdly, you make claims as if they are facts. Your claim that return growth cannot outpace dividend growth is not based on empirical evidence.  We”ve seen the opposite over the whole period of stock market existence.  

Last but not least... Here is another paper. Makes a clear point that actual historic returns are not correlated to GDP growth.  You do claim correlation, even if you don’t understand the word.  The paper claims that there is correlation to expectations of GDP growth but thats very different.  http://webdesign.prosperexperiential.com/frameglobal/wp-content/uploads/2018/11/GDP-Growth-and-Equity-Returns-Schroders-2013.pdf

Please read what I have said and stop patronising me. I have a maths degree, I know perfectly well what correlation is.
For the fourth time, I have never used the word correlate, nor has anything I said implied or relied on GDP/index correlation. As you still can't seem to understand this or correlation, but that I am stating that there is a relationship, I'll  try again.

I HAVE NEVER SAID THAT IF YOU COMPARE NOMINAL GDP, OR ANNUAL NOMINAL GDP GROWTH, WITH A STOCK INDEX, OR ITS ANNUAL CHANGES, THAT THERE SHOULD BE ANY SIGNIFICANT CORRELATION.

...
Re; dividends my claims are not factually incorrect, dividend payout ratios have fallen due to the growth of capital intensive tech and healthcare particularly in the S&P 500 and the growth of share buybacks culture. This is not indefinitely sustainable. Also due to boomer demographics the ratio of wealth to GDP in developed economies is at an all time high, capital is cheap, hence the temporary excess of stock indices over GDP. There is no reason to expect this to continue indefinitely - wealth cannot outstrip the economy that generates wealth indefinitely.

And here's a US source showing market cap growing faster than stock indices:
https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.yardeni.com/pub/marketcap.pdf&ved=2ahUKEwid8YHO8LvtAhUTiFwKHXhHBHUQFjADegQICxAB&usg=AOvVaw0TpqVj3_FtsiynCA73NkR9&cshid=1607344447293

itwasntme001

For all we know we could be in a giant stock market bubble and once interest rates and inflation "normalize" to 3, 4, 5, 6, 7%, you'll get a repricing of financial markets on such a massive scale that will be seen as the bubble bursting.

Uk equities are probably better positioned to handle this environment than S&P500 and certainly the Nasdaq.

That;s why I say, you got to be a market timer to generate significant wealth long term.  Even a pure passive tracker can easily have a 20 year period of negative returns.

Something like capital gearing trust, who agree market timing works and admit to doing so, has provided the best returns out of all ITs.  Medium to long term market timing seems to work well.  The power of compounding works just as well (perhaps even better) when avoiding large draw-downs.

[Deleted User]

Another_Saver said:

Deleted_User said:

Another_Saver said:

Deleted_User said:

Another_Saver said:

Deleted_User said:

“ 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. 

I didn't say correlated.
Markets are a human system, to suggest they are so efficient that to try and do something else is silly... Well I think that's a silly idea.
I have explained how even over the recent long term, uprating (or positive speculative return) and listed companies expanding the share of GDP they occupy have cancelled out this effect. Neither of those should be relied on indefinitely.

Source: https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.researchaffiliates.com/documents/FAJ-2003-Two-Percent-Dilution.pdf&ved=2ahUKEwiLz4Dz_bbtAhUOfMAKHe7kBDUQFjAAegQIAhAB&usg=AOvVaw3k73yZYUiPErU7pmTxLLQD

At the level of a sufficiently broad and large national index, stock returns are a function of:
Dividend yield and capital growth

Capital growth is a function of:
Inflation/change in price level

Population growth

Capital dilution/concentration

Change in valuation/rerating/

Stock market share of GDP expansion/contraction

Real productivity growth (real GDP per capita growth)

Unfortunately the UK has been tending towards an extreme example like Hong Kong or Singapore of a stock market that has close to nothing to do with the economy it is in. The FTSE 100s biggest mining company Rio Tinto for example pay most of their tax in Australia, have essentially negligible operations in the UK, I would guess that a very small amount of their sales, directly or indirectly are to the UK, and I suspect they are more than the UK average 55% foreign-owned.
However this is true, to varying degrees, of almost every company and every stock market in our globalised, internationally trading world.

Same thing. The reference does not claim that the index lags GDP growth by 2%, so it does not support your assertion. The reference talks about earnings growth.  That’s not what the index returns.  Firstly, a large chunk of the economy is not traded on the stock market and is not reflected in the index.  Secondly, earnings to price ratio has been going down for a looong time now.  Thirdly, the paper is dated.  It talks about a 100 year period and chooses to discount a decade.  Well, we are 20 years later. That’s 30 years’ worth of extra data vs the 90 year period they considered.   Over the recent decades buybacks in the US have outpaced share emission. The paper is dated on this issue as well.  

In reality, returns on major country indices have outpaced GDP growth over sufficiently long periods of time.  That’s a fact.  Does not matter what papers say - and they don’t actually say that indices return less than the GDP growth.
If you include dividends then of course the total return on almost all national stock indices will outpace that economies GDP growth. The actual indices have lagged GDP over the very long term. That is a fact. I don't know where you have gotten yours from or how you explain yours. The reasons matter, how the markers work matters. They do actually say that as I explain further below.

This reference plots S&P 500 return vs GDP growth. https://www.bloomberg.com/opinion/articles/2020-06-09/stock-market-has-almost-always-ignored-the-economy

Yes it does, again I have never said anything about correlation.
The paper answers all of your points.
A stock market index's growth cannot exceed the dividend and earnings growth of the companies indefinitely. They have included re rating. The paper's age does not make it irrelevant - double entry book keeping is centuries old but still relevant. Since 1985, the FTSE 100 has diluted at ~2.4% pa, coincidentally offset by the same amount of expanding relative to GDP. I will try and find similar data for the S&P 500.

Firstly, you don’t understand the word “correlate”.  If you are claiming a relationship with index returns lagging gdp growth by a constant percentage, thats positive correlation. 

Secondly, you chose to ignore the factual evidence.  The link I provided has a plot which shows that in the US returns have weak correlation with GDP.  Not only that, over long term returns have beaten GDP. By an awful lot. 

Thirdly, you make claims as if they are facts. Your claim that return growth cannot outpace dividend growth is not based on empirical evidence.  We”ve seen the opposite over the whole period of stock market existence.  

Last but not least... Here is another paper. Makes a clear point that actual historic returns are not correlated to GDP growth.  You do claim correlation, even if you don’t understand the word.  The paper claims that there is correlation to expectations of GDP growth but thats very different.  http://webdesign.prosperexperiential.com/frameglobal/wp-content/uploads/2018/11/GDP-Growth-and-Equity-Returns-Schroders-2013.pdf

Please read what I have said and stop patronising me. I have a maths degree, I know perfectly well what correlation is.
For the fourth time, I have never used the word correlate, nor has anything I said implied or relied on GDP/index correlation. As you still can't seem to understand this or correlation, but that I am stating that there is a relationship, I'll  try again.

I HAVE NEVER SAID THAT IF YOU COMPARE NOMINAL GDP, OR ANNUAL NOMINAL GDP GROWTH, WITH A STOCK INDEX, OR ITS ANNUAL CHANGES, THAT THERE SHOULD BE ANY SIGNIFICANT CORRELATION.

...
Re; dividends my claims are not factually incorrect, dividend payout ratios have fallen due to the growth of capital intensive tech and healthcare particularly in the S&P 500 and the growth of share buybacks culture. This is not indefinitely sustainable. Also due to boomer demographics the ratio of wealth to GDP in developed economies is at an all time high, capital is cheap, hence the temporary excess of stock indices over GDP. There is no reason to expect this to continue indefinitely - wealth cannot outstrip the economy that generates wealth indefinitely.

And here's a US source showing market cap growing faster than stock indices:
https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.yardeni.com/pub/marketcap.pdf&ved=2ahUKEwid8YHO8LvtAhUTiFwKHXhHBHUQFjADegQICxAB&usg=AOvVaw0TpqVj3_FtsiynCA73NkR9&cshid=1607344447293

1. This what you said: “ most national stock market indices lag their country's GDP by about 2% a year...”
If it were true (it isn’t), it would mean positive correlation between indices and GDP growth.  That’s a fact. You can’t make up facts. 

2. You are also confused about the market cap.  Market cap of a given index cannot grow faster than the index. That’s not what your link is showing at all. It just compares market caps for various indices.  

Thrugelmir

itwasntme001 said:

For all we know we could be in a giant stock market bubble and once interest rates and inflation "normalize" to 3, 4, 5, 6, 7%, you'll get a repricing of financial markets on such a massive scale that will be seen as the bubble bursting.

A business can only generate what it generates. At some point the price paid for a share of a business has to revert to the mean. Markets are often irrational for long periods. 

itwasntme001

Thrugelmir said:

itwasntme001 said:

For all we know we could be in a giant stock market bubble and once interest rates and inflation "normalize" to 3, 4, 5, 6, 7%, you'll get a repricing of financial markets on such a massive scale that will be seen as the bubble bursting.

A business can only generate what it generates. At some point the price paid for a share of a business has to revert to the mean. Markets are often irrational for long periods. 

And valuations depend on interest rates, earnings depend on pricing power (which becomes more important during inflationary periods) etc.

Thrugelmir

itwasntme001 said:

Thrugelmir said:

itwasntme001 said:

For all we know we could be in a giant stock market bubble and once interest rates and inflation "normalize" to 3, 4, 5, 6, 7%, you'll get a repricing of financial markets on such a massive scale that will be seen as the bubble bursting.

A business can only generate what it generates. At some point the price paid for a share of a business has to revert to the mean. Markets are often irrational for long periods. 

And valuations depend on interest rates, earnings depend on pricing power (which becomes more important during inflationary periods) etc.

Earnings can manipulated.  Share buybacks being the prime example of how Executives reward themselves.