How should I assess whether my investments(/IFA) are being successful?

BrunoM

This might be a dumb/"your mileage may vary" question I suspect... about 18 months ago I moved savings and pension pot via an IFA engagement, and ultimately sitting now with Aegon.  The returns over the time so far haven't been great, in isolation - these are long term savings and investments so not necessarily a deal breaker at all, but how should I think about whether they're doing a good job?  Are there obvious ways to benchmark, or similar?  Right now I just need to swallow what the IFA says.

Thanks

Albermarle

The last 18 months have been relatively poor for investments, especially ones ironically classed as low risk.
So a lot of it is down to timing.
It is difficult to benchmark without knowing your situation better. Are you younger with a high risk tolerance or maybe near retirement, or someone who is naturally quite cautious.
Many people use low cost passive multi asset funds and you can use them as a kind of rough benchmark.
HSBC global strategy - cautious - Down 11% from 01/01/22 ( lower risk fund)
                                   - Balanced - Down 7%                         ( medium risk fund)
                                   - Adventurous - Down 2%                    ( higher risk fund)
Note that if you bought before or after 01/01/22, you will see a little bit different numbers.

Linton

BrunoM said:

This might be a dumb/"your mileage may vary" question I suspect... about 18 months ago I moved savings and pension pot via an IFA engagement, and ultimately sitting now with Aegon.  The returns over the time so far haven't been great, in isolation - these are long term savings and investments so not necessarily a deal breaker at all, but how should I think about whether they're doing a good job?  Are there obvious ways to benchmark, or similar?  Right now I just need to swallow what the IFA says.

Thanks

You cannot tell whether an advisor is doing a good job simply by looking at investment returns.  It is a bit like a doctor....

You go to a doctor because you feel ill.  You are prescribed with some pills. You die.  Did the doctor do a bad job?  Perhaps or perhaps not.  Perhaps you would have died anyway.  The only judgement is one after the event when someone can analyse whether you were given the appropriate pills for the symptoms.

So you have to use more subjective measures.  DId the advisor find out what you you wanted from your investments and what your concerns were?. Were actions suggested that you would not have considered previously.  Did the advisor cause you to think about things in a different way.  Did the advisor explain why particular choices were made? Did the advisor explain "risk" to you?  When you raised concerns about performance were you satisfied with the explanation.  Would you have done something foolish, or foolishly done nothing at all, if you had not talked to an advisor?

The problem is twofold:

 - the advisor cannot predict global or national economic events which ultimately determine investment returns or which investments will do well and which ones wont.  No-one can consistently and most will be lucky to break even.

 - Thre is a balance to be made between returns and risk.  The higher the returns you seek the greater the chance that you wont achieve them and that the path will be rocky with large swings in valuation in the meantime.  So the skill is to choose those investments which are likely to give sufficient returns to meet your needs without taking a level of risk that will cause you sleepless nights at best or to panic and sell out at the bottom of the market realising large losses at worst.

Super high returns are not a sign of good investing, more of poor but lucky investing.

You should not just swallow what the IFA says.  That is missing out on a significant benefit of using an IFA - your education. If you dont understand something ask questions.  Ideally you can get to the pint where you do feel you understand what is going on and are confident if you wish to manage your own investments.

eskbanker

Linton said:
Ideally you can get to the pint where you do feel you understand what is going on...

How many do you have to drink to reach that one?

Cus

One very rough benchmark I occasionally look at are the Advisor Fund Indices (AFI) on Trustnet in the charting section.  There are 3, adventurous, balanced and cautious, and the default graph seems to populate with them shown automatically.  They are based on what funds a number of advisors are choosing as I understand.  It's very rough but might give you a feel for where your IFA sits.

Expotter

This video on how to compare return on funds might be of some help

https://www.youtube.com/watch?v=4UzfgPTkktg

enthusiasticsaver

Some good replies on here.  Our IFA publishes the results of our portfolio (low to medium risk) against benchmarks to see how they compare so a blunt approach is to compare your returns against the benchmark for the appropriate risk.  As others have said the markets are pretty static at the moment. 

Really though most go for IFAs not just to get good returns (although of course that is always nice)  but they act as a hand holder through the investment process and makes sure you are not investing outside your appetite for risk or that you don't make mistakes and provide advice if you are unsure about anything.  We have six monthly reviews with ours and he regularly calculates cashflows and advises how much we can withdraw to subsidise our pensions and of course they sometimes restructure after quarterly investment meetings and change funds. They have the resources to research different funds  and we don't and I do not really have the inclination or the time to and have the confidence in him to manage our investments well.  

Bostonerimus1

You can look back at historical averages and see where you stand. Of course if you ditch the IFA and DIY with passive index funds you'll be guaranteed to get the market return...minus a tiny bit for expenses. But the real measure of success is whether you are at least meeting your own investment return requirements set in your investment/retirement plan. You should know the returns you require for a successful plan and then try to get those with the minimum risk. External comparisons are far less important than meeting your plan's internal requirements.

El_Torro

One way to compare what you could have done without an IFA is compare the returns of your investments with an IFA to the returns of a virtual portfolio. This could be as easy as comparing your returns to a global tracker.

As Linton says the job of an IFA is not to maximise your returns. IFAs are useful for people who would for example invest above their risk tolerance and sell everything when the market reaches rock bottom, thereby crystalizing losses. There are also other expensive mistakes that novice investors could make that IFAs are there to prevent.

For my situation I really don't see the point in using an IFA, they would just eat into my profits. Not to say that IFAs aren't valid. There are many house and car repairs that I've had done over the years by professionals that I could have done myself. Whether I would have done them badly and ended up paying more to get them fixed is up for debate.

JohnWinder

First you need to decide what you’re investing for: retirement spending; property purchase in ten years; higher education fees in 15 years etc.
For retirement a rough and ready assessment is to use the 4% rule: it tells you how big your investment assets should be to fund a retirement, having firstly decided how much money you’ll want to spend in retirement. If you want to spend £100/year, you need a fund of £2500. Is the growth in your investments likely to achieve that, is your question. But it’s not only your investment returns that determine that, it’s your savings rate as well. The more you save early on, the better your investments will do; that’s about compounding growth.
Another measure is the funded ratio, aiming for >1.0. This is the ratio of current assets that will provide a guaranteed safe income as the numerator, compared with how much you’ll spend in retirement. Rarely considered in our circles, but you can read it here: https://www.bogleheads.org/forum/viewtopic.php?t=219878

Aside from how much you save, the success of your investments depends on what the markets do, over which you have no control, but it also depends on whether your investment managers are able to get those market returns, or fall short or exceed them. It’s easy to get those market returns, you just invest in well chosen index trackers - result almost guaranteed. It’s easy to get below market returns by trying to beat the market, as we’ve read in the SPIVA reports and lots of other research; and it’s very hard for you to get above market returns over periods longer than about 10 years. 

Your question was in the present tense, ‘are being successful’. With investment returns it’s pretty much past tense (what they’ve been), and future tense (what they will be), there is no present tense. Your best chance for successful future returns is with low cost index trackers; the alternatives are a gamble not only on the markets' fortunes but the fund managers’ abilities to capture them. There’s nothing wrong with taking that gamble, but understand that’s what you’re doing and how likely success is.

You’re probably at the stage in life where you’d get a lot out of Hollow’s book Funding the life you want, which might be at your local library or ask them to get it for you.