S&P 500

1813

Hi

i was wondering does a simulator / calculator exist where I can experiment with contributing and withdrawing from this index over a set amount of years based on a starting figure as it’s important for my future planning. 

Any advice much appreciated.

eskbanker

Are you contemplating setting up a series of dummy trades over a period of multiple years before making a decision about whether or not to invest?  If so, I believe that there are a number of platforms that offer such a facility, but I doubt it's intended for long term use, which does seem counterproductive - you can easily use a spreadsheet to model the effect of contributing and withdrawing over the past few years if you're looking to see how volatility works, but of course performance over one such period says nothing about the next one.

And at the risk of being pedantic, you don't contribute or withdraw from an index as such, but you can buy and sell units in a fund that tracks it.  However, it's always pointed out on here that choosing one particular market isn't likely to be the best approach, unless you have a strong conviction that the USA will outperform other markets over your investment horizon, and there are many who observe that it's done so in the recent past and is therefore less likely to repeat that in a cyclical environment....

dunstonh

How would that help you?

Obviously, you would have an American fund for your US allocation but modelling against just the S&P500 would not be suitable as you wouldn't invest 100% in the S&P500 (unless you are a novice investor acting on recency).  You would model it on your whole portfolio including the other regions of the world.

However, if you are investing poorly by going 100% S&P500 then you need to be careful with any tools you find as you are not dollar domiciled and are subject to exchange rate fluctuations and the return UK investors get when investing in a non-hedged US fund will be different to what US investors will get.

And if you do model it you would need to be looking at least 30 years but ideally more.   Any less would be pointless as you have the first decade of this millennium, where it was down and was one of the worst areas to invest, and the last 10-12 years, where it bounced back.   Historically, global equity and US equity cycle between each other but typically revert to mean over the long term.   So, any short term figures would be highly misleading.   

Hoenir

Remember to base your planning on £ not $ numbers. The complete unknown factor of fluctuating exchange rates adds to the unpredictability of what the future has in store. 

1813

Thanks for the insights it’s much appreciated. I’m just looking at many things that I could do for older age that would allow me to reach my goal and this was one of them because realistically I would need to rely on the market at that age as bank accounts for example for the most part would probably be insufficient.

eskbanker

1813 said:

Thanks for the insights it’s much appreciated. I’m just looking at many things that I could do for older age that would allow me to reach my goal and this was one of them because realistically I would need to rely on the market at that age as bank accounts for example for the most part would probably be insufficient.

Although you don't give any indication of the timeframe you have in mind, assuming it's 10+ years then the general point is valid, i.e. that investing is a much more sensible approach than staying in cash deposits.

That doesn't mean that the sort of 'experimentation' that you originally outlined would be appropriate though, so it would be better to research investment fundamentals, on here and elsewhere, and commit to a strategy and plan, which, as well as considering which investments are likely to fit your objectives best, should also identify suitable tax wrappers, e.g. pensions, ISAs, etc.

Hoenir

1813 said:

Thanks for the insights it’s much appreciated. I’m just looking at many things that I could do for older age that would allow me to reach my goal and this was one of them because realistically I would need to rely on the market at that age as bank accounts for example for the most part would probably be insufficient.

The S&P is just one market of many. Remember the old adage "Don't put all your eggs in one basket” 

Albermarle

1813 said:

Thanks for the insights it’s much appreciated. I’m just looking at many things that I could do for older age that would allow me to reach my goal and this was one of them because realistically I would need to rely on the market at that age as bank accounts for example for the most part would probably be insufficient.

The normal route for building up a retirement fund is through investing via a pension, due to the tax advantages.
Have you got a pension set up? with work ?

dunstonh

1813 said:

Thanks for the insights it’s much appreciated. I’m just looking at many things that I could do for older age that would allow me to reach my goal and this was one of them because realistically I would need to rely on the market at that age as bank accounts for example for the most part would probably be insufficient.

Investing for the long term is good but it needs to be long term.
For example, if you invested on the 1st Jan 2000 in the S&P500 then you would be down in value 10 years later.



If you invested from then until now then you would be up.  



Also notice how the longer the time period, the more shallow older negative periods appear.  That top graph is the same as the first half of the bottom one.  it just gets flattened out due to timescale.

And lets say you invested £100,000 on 1st January 2000 in an S&P500 tracker and draw £400pm (which is 4.8% of the starting amount), you would have £5313 left today (it would actually be less as the figures do not include the platform charge)



and just for good measure, here is what sector average for global, and the two main mixed investment sector averages would have done in the same period:



There are ways to mitigate sequencing risk (drawing when values go down).    Bucketing, cash floats, yielding strategy (where you only draw the income and don't sell units).  The way you invest for growth is different to the way you invest for income.  and to highlight that, the chart below shows growth with no withdrawals (same as the second one but the addition of the other areas)



Notice how the outcome is different from growth vs withdrawals?

1813

I am 42 and have worked on and off for 21 years. I have two pensions that pay out yearly and 21 years of state pension contribution which at the moment would pay out near to £13000 a year so it’s not too bad. Two of these pensions I can’t take until I am 68 or later of the state pension age changes and one I can take at 60 which can give me more opportunity of investment as well, which can only be a good thing besides any other regular investing. I am looking at a target of £48000 a year which can be done but it depends if th8nk stay the same over almost 30 years. 

GazzaBloom

I have used FiCalc which uses the historical returns of the US to test a plan of savings & withdrawals. It uses large cap US/S&P500 for its equity) It's free to use and you can save your plan as a link that you can copy and save.

https://ficalc.app/

It's OK for a rough guide but is in USD so the fx variance between GBP/USD is not factored, doesn't allow for any form of taxation on withdrawals (so I plot expected gross withdrawals) and I assume it uses average US inflation for it's calculations.

It does allow input for additional cash flows later on such as state pension and also one off withdrawals over and above annual living expenses.

So, it's OK but not in any way perfect for detailed planning for a UK save/investor/retirement planning. I use it alongside a professional retirement planing tool and my own crude spreadsheet, more as a verification of the results from the other 2 than anything.

There is also Portfoliovisualizer which is also US based:

https://www.portfoliovisualizer.com/backtest-asset-class-allocation