IFA and Wealth Manager

dunstonh

 He said they could set up a plan to bring back returns of 5% over five years.

I assume they didn't actually say that but suggested that the ballpark expectation would be 5% p.a. as the long term average.  It would be highly inappropriate to suggest 5% p.a. would be the expectation for such a short term like 5 years.  I am sure they gave you caveats and said a bit more than that.   

Time dilutes the risk.  The longer you invest, the closer you get to the long term average.   The shorter you invest, the further you will be either side of the long term average.

5 years is short term.  You dont know if you are going to get the best half/third of the economic cycle or the worst.  You are unlikely to be close to the long term average by 5 years.  

When i told him my circumstances he said there were many similar clients on their books and he suggested a low risk strategy in which there was a risk of having poorer years but over the timescale would bring back a return that beats cash accounts 

Again, a sentence is probably unfair to summarise the discussion and what was actually said.  However, the average UK consumer is cautious and every advice firm will have cautious investors.      Although future short term returns for lower risk investors are expected to be lower than they have been over the last decade.

P933alilli

Thanks for the replies!

Fees: Depending on the size of your fund etc you should look for max 1.5% for everything , preferably less.
  

Would that be the fee each year or for a period of years? And would it be charged at the start? 

And if five years is too short term would i be looking more at ten years? If thats the case it may be not worth bothering with!

tebbins

Collyflower1 said:

Thanks for the replies!

Fees: Depending on the size of your fund etc you should look for max 1.5% for everything , preferably less.
  

Would that be the fee each year or for a period of years? And would it be charged at the start? 

And if five years is too short term would i be looking more at ten years? If thats the case it may be not worth bothering with!

That 1.5% per annum.
5 years is generally considered the minimum amount of time you should invest for before you may need or want to take some of the money.
Why do you think it may not be worth bothering investing for 10 years?

dunstonh

Fees: Depending on the size of your fund etc you should look for max 1.5% for everything , preferably less.
  Would that be the fee each year or for a period of years? And would it be charged at the start? 

Annual ongoing charges are each year.

And if five years is too short term would i be looking more at ten years? If thats the case it may be not worth bothering with!

5 years is the minimum.  Remember that modern investing is open ended.    It is not a fixed term.    So, do you actually have a spending need in 5 years time? (i.e. drawing it all out and spending every penny)

P933alilli

The reluctance on potentially investing for 10 years is that im 60 and may want to go on some holidays and live a bit. I havent got a large amount ! I'll also be upping my pension contributions to my max of £2880 for the next 5 years,(i only pay in £480 atm!). I also rashly fixed some cash for 2 years which i'm 1/4 of the way through and not allowed to access until maturity. I'm also responsible for paying for a loved one in a carehome. So' i'll need to have a good think!
  Can any interest earned be taken after a 5 year period say? Indeed is it possible to earn a monthly income from investing?

dunstonh

The reluctance on potentially investing for 10 years is that im 60 and may want to go on some holidays and live a bit. 

As I said, you don't pick the term you are investing for.  It is open ended.     It sounds as if you are will be drawing the money in dribs and drabs rather than spending it in one go.

Albermarle

Can any interest earned be taken after a 5 year period say? Indeed is it possible to earn a monthly income from investing?

You earn interest on savings, not on investments.

You can earn money from investments in two ways . 

You buy at price £x and later sell at £x + 10% ( as an example) 

The Investments can also pay a dividend ( which is sort of like interest ) which can be paid to you , whilst keeping the investment.

However in a bad market situation , it maybe that you but at £x and then it is only worth £x minus 10% .

Or that you still get the dividend, but the actual investment falls in value ( which is why it is necessary to be clear that it is not like savings ) 

The idea of investing long term is that historical data shows that the long term trend of investments is up , although they will move up and down in the short/medium term . Have a look at this link.

Long-term investing: Increasing your chances of positive returns (nutmeg.com)

jimjames

Collyflower1 said:

  Can any interest earned be taken after a 5 year period say? Indeed is it possible to earn a monthly income from investing?

You can certainly take an income from investments but in order to get it monthly it would be more complicated. Many investments pay out dividends every 3 months if that would be sufficient for you. Dividends are also considerably higher than bank interest at the moment but obviously your capital isn't guaranteed (and neither is the dividend income) Although some companies have raised dividends for over 50 years it isn't a cast iron guarantee that will continue.

As per the comments above unlike a fixed term savings account with investments you aren't tied in to a specific time period. It's suggested that you should plan for 5-10 years for example because there may be a market crash and your investment is lower at some point in that time. The longer the time the less likely that will be a problem.

Unlike your savings account you mentioned there is no reason why you couldn't draw money out after 6 months if you desperately needed it. It wouldn't be a recommended plan and the value might be lower than when you invested but there is nothing to stop you getting your money whenever you want.

JohnWinder

dunstonh said:

Time dilutes the risk.  The longer you invest, the closer you get to the long term average.   The shorter you invest, the further you will be either side of the long term average.

5 years is short term.  You dont know if you are going to get the best half/third of the economic cycle or the worst.  You are unlikely to be close to the long term average by 5 years. 

Every word is true, but informed investors need to go a step further in their thinking on this to see what might happen.

If you invest for 19 years, getting an average return of 7%/year, and in the last year of your investing before you need all the money (the end of the 20th year) your returns are minus 20% for the year, your 20 year average return will be ((7x19) -20)/20 = 5.7%. So, yes, the minus 20% doesn't have much effect on your long term average. But to lose 20% of your investment in the last year represents a big risk; so be careful, investors, when thinking time dilutes risk; as always, risk can mean different things.

You can read about this is Pastor and Stambaugh's 'Are Stocks Really Less Volatile in the Long Run?', and in Martin Sewell's Research Note RN/11/04 History of the Efficient Market Hypothesis 20 January 2011 from University College London, where you can read 'Then in 1863 a French stockbroker, Jules Regnault, ob- served that the longer you hold a security, the more you can win or lose on its price variations: the price deviation is directly proportional to the square root of time'...

eskbanker

JohnWinder said:

dunstonh said:

Time dilutes the risk.  The longer you invest, the closer you get to the long term average.   The shorter you invest, the further you will be either side of the long term average.

5 years is short term.  You dont know if you are going to get the best half/third of the economic cycle or the worst.  You are unlikely to be close to the long term average by 5 years. 

Every word is true, but informed investors need to go a step further in their thinking on this to see what might happen.

If you invest for 19 years, getting an average return of 7%/year, and in the last year of your investing before you need all the money (the end of the 20th year) your returns are minus 20% for the year, your 20 year average return will be ((7x19) -20)/20 = 5.7%. So, yes, the minus 20% doesn't have much effect on your long term average. But to lose 20% of your investment in the last year represents a big risk; so be careful, investors, when thinking time dilutes risk; as always, risk can mean different things.

Also true, but for anyone considering investing with a fixed end date in mind like that, it would be prudent to derisk leading up to then, rather than staying in something volatile right up to the last moment!