Do funds ever lose money over time?

older_and_no_wiser

As I've been doing lots of research as part of my pension SIPP rebalancing, a thought has just occurred to me; "Can I actually lose money over the medium/long term?". 

As I research different funds, they all make money over the long term (>5 years). So I'm only trying to maximise my return (ie get greedy!). Being realistic, as long as I invest as much as possible into my SIPPS and get the added tax contributions on top, I can't really lose out. 

If I was stupid and invested in single stocks for the duration, then of course that is very risky. and I could lose out in a major way However, all funds which are passive or managed seem to make money over a duration. If they didn't, then I'm guessing someone would step in and change things?

So if I keep contributing as much as I can per month through my work and personal pensions, then I'm pretty well set and even if I pick my funds badly and get an average return per year of perhaps 3% over a 20-30 year period, then the effect of cumulative interest/accumulation and HMRC tax top-ups gives a decent return - so much better than any bank or building society.

Of course, the better I pick my investment funds, the earlier in theory I could retire and build a big pot. But as I'm someone who already has a big pension pot and am 6-7 years from retirement, then there's minimum/no risk - unless the whole world's economy crashed for a number of years (is this even possible?).

I may be over simplifying, but I'm trying to justify the endless hours I'm spending researching possible SIPP funds and sector/region splitting.

masonic

There are plenty of funds that have lost investors a lot of money and never recovered - either they've closed down, been absorbed into another fund, or completely reinvented and relaunched. This is the origin of 'survivorship bias'. People don't tend to remember, or account for, historic failed funds when looking at past performance.

bizdustry

Funds can lose money overtime from the cost of inflation going up (the price of goods and services) but there are plenty of other ways that investments can be reduced over time. 

older_and_no_wiser

masonic said:

There are plenty of funds that have lost investors a lot of money and never recovered - either they've closed down, been absorbed into another fund, or completely reinvented and relaunched. This is the origin of 'survivorship bias'. People don't tend to remember, or account for, historic failed funds when looking at past performance.

I'm thinking of the current batch of funds which seem to have a decent track record. e.g. HSBC Global Strategy, Baillie Gifford, Vanguard, Fidelity, Blackrock iShares to name a few which are popular and well performing. What's the chances any of these will go belly up? They all seem to have a decent content of index trackers and/or well managed portfolios.

Steve182

Risk exists, but over the long term it's low unless the fund in question is very specialised.

With good diversification, whether that be one well diversified fund or half a dozen funds in different sectors to achieve similar diversification, risk of overall loss in the long term is minimal. 

Thrugelmir

For the majority of people long term investing isn't a worry about making a positive return but more the fear of missing out. As there'll always be a sector which has performed considerably better.  To take an example Baillie Gifford have recently come to prominence (out of the pack) due to their investment in Tesla over a decade ago. The gain is now baked into the performance history tables. Probability of repeating the feat any time soon, probably zero. Yet BG funds will draw in new funds in expectation of superior returns compared to other fund management groups. The larger a fund becomes the more difficult it is to stand out from the pack. Possibly even end up underperforming. 

El_Torro

swleventhal said:

I'm thinking of the current batch of funds which seem to have a decent track record. e.g. HSBC Global Strategy, Baillie Gifford, Vanguard, Fidelity, Blackrock iShares to name a few which are popular and well performing. What's the chances any of these will go belly up? They all seem to have a decent content of index trackers and/or well managed portfolios.

For a multi asset fund or global tracker the chances of it going belly up are pretty small. Put it this way, if a global tracker collapses then essentially the global economy has collapsed, so how well your investments are doing will probably be the least of your worries.

Of course a multi asset fund or global tracker could become so unpopular that the people who run the fund decide it's no longer worth having so they close it down. Your money will most likely be safe though, as the money in the fund will most likely be put into another similar fund (either run by the same people or sold to someone else).

I don't have much experience with managed funds. However bad management decisions could lead to the fund losing money hand over fist and it basically collapsing. Think Woodford. Baille Gifford is a well established name that seems to make reasonably steady decisions, so if you go with a fund like this the chances of you losing a lot of money over the long term are probably very small. The chance does exist though.

Steve182

Thrugelmir said:

For the majority of people long term investing isn't a worry about making a positive return but more the fear of missing out. As there'll always be a sector which has performed considerably better.  To take an example Baillie Gifford have recently come to prominence (out of the pack) due to their investment in Tesla over a decade ago. The gain is now baked into the performance history tables. Probability of repeating the feat any time soon, probably zero. Yet BG funds will draw in new funds in expectation of superior returns compared to other fund management groups. The larger a fund becomes the more difficult it is to stand out from the pack. Possibly even end up underperforming. 

Certainly Tesla has been a major factor in BG's success over the past 12 months or so, but SMT outperformed indices like the S & P long before Tesla shares went skyward.

Thrugelmir

Steve182 said:

Thrugelmir said:

For the majority of people long term investing isn't a worry about making a positive return but more the fear of missing out. As there'll always be a sector which has performed considerably better.  To take an example Baillie Gifford have recently come to prominence (out of the pack) due to their investment in Tesla over a decade ago. The gain is now baked into the performance history tables. Probability of repeating the feat any time soon, probably zero. Yet BG funds will draw in new funds in expectation of superior returns compared to other fund management groups. The larger a fund becomes the more difficult it is to stand out from the pack. Possibly even end up underperforming. 

Certainly Tesla has been a major factor in BG's success over the past 12 months or so, but SMT outperformed indices like the S & P long before Tesla shares went skyward.

Tesla wasn't allowed to join the S&P 500 until the 21st December 2020 as didn't meet the qualification criteria. Market capitalisation alone doesn't suffice.  

In fact since it's inclusion the price has slipped backwards. Passive funds of course were forced to buy the stock in order to mirror the indexes. As wasn't just the S&P 500 that was impacted. . Making some hedge funds sizable amounts of money in the process. 

Steve182

Thrugelmir said:

Steve182 said:

Thrugelmir said:

For the majority of people long term investing isn't a worry about making a positive return but more the fear of missing out. As there'll always be a sector which has performed considerably better.  To take an example Baillie Gifford have recently come to prominence (out of the pack) due to their investment in Tesla over a decade ago. The gain is now baked into the performance history tables. Probability of repeating the feat any time soon, probably zero. Yet BG funds will draw in new funds in expectation of superior returns compared to other fund management groups. The larger a fund becomes the more difficult it is to stand out from the pack. Possibly even end up underperforming. 

Certainly Tesla has been a major factor in BG's success over the past 12 months or so, but SMT outperformed indices like the S & P long before Tesla shares went skyward.

Tesla wasn't allowed to join the S&P 500 until the 21st December 2020 as didn't meet the qualification criteria. Market capitalisation alone doesn't suffice.  

In fact since it's inclusion the price has slipped backwards. Passive funds of course were forced to buy the stock in order to mirror the indexes. As wasn't just the S&P 500 that was impacted. . Making some hedge funds sizable amounts of money in the process. 

I don't dispute those facts, simply pointing out that BG's rise to prominence is not just the result of them backing Tesla.

Thrugelmir

Steve182 said:

Thrugelmir said:

Steve182 said:

Thrugelmir said:

For the majority of people long term investing isn't a worry about making a positive return but more the fear of missing out. As there'll always be a sector which has performed considerably better.  To take an example Baillie Gifford have recently come to prominence (out of the pack) due to their investment in Tesla over a decade ago. The gain is now baked into the performance history tables. Probability of repeating the feat any time soon, probably zero. Yet BG funds will draw in new funds in expectation of superior returns compared to other fund management groups. The larger a fund becomes the more difficult it is to stand out from the pack. Possibly even end up underperforming. 

Certainly Tesla has been a major factor in BG's success over the past 12 months or so, but SMT outperformed indices like the S & P long before Tesla shares went skyward.

Tesla wasn't allowed to join the S&P 500 until the 21st December 2020 as didn't meet the qualification criteria. Market capitalisation alone doesn't suffice.  

In fact since it's inclusion the price has slipped backwards. Passive funds of course were forced to buy the stock in order to mirror the indexes. As wasn't just the S&P 500 that was impacted. . Making some hedge funds sizable amounts of money in the process. 

I don't dispute those facts, simply pointing out that BG's rise to prominence is not just the result of them backing Tesla.

Correct they backed Amazon as well. 

Fund managers themselves come and go. Charles Plowdon retired last week. The architect of the successful strategy.