S&P 500

Bobziz

dunstonh said:

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?

Really helpful to see the impact visually, thank you. Are you able to chart the impact of not withdrawing for the first 3 & 5 years please.

OldScientist

1813 said:

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.

The calculator at https://portfoliocharts.com/charts/financial-independence/ might be useful for you. You'll need to set your home country to the UK and your asset allocation to 100% US LCB (large cap balanced), an appropriate savings rate and what you have already accumulated. Note that the historical data used only go back to 1970 so are relatively limited. It is also worth noting that historical outcomes varied wildly depending on the start year and that historical data only tell you what did happen and have no predictive properties (but are useful for guidance).

As others have said, one question might be why SP500 only and not a global equity index?

dunstonh

Bobziz said:

dunstonh said:

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?

Really helpful to see the impact visually, thank you. Are you able to chart the impact of not withdrawing for the first 3 & 5 years please.

On that particular piece of software, no.    Although it could do two graphs with different dates.   I have other software that could do it but uses real client data that needs to be input and doesn't have a generic quick & easy input.   It then models it based on over 100 years of monthly data to show best through to worst case based on the asset classes of the investment funds held.         What you soon realise is that the scale of difference between best and worst is so significant that it's pointless trying to predict accurately.

I did a review yesterday, and the worst case showed money running out by age 71, and the best case showed having £2.7m by age 99.      

Bobziz

dunstonh said:

On that particular piece of software, no.    Although it could do two graphs with different dates.   I have other software that could do it but uses real client data that needs to be input and doesn't have a generic quick & easy input.   It then models it based on over 100 years of monthly data to show best through to worst case based on the asset classes of the investment funds held.         What you soon realise is that the scale of difference between best and worst is so significant that it's pointless trying to predict accurately.

I did a review yesterday, and the worst case showed money running out by age 71, and the best case showed having £2.7m by age 99.      

Ah ok, thanks. I was interested to see the difference between a 3 and 5 year cash buffer. Looking at the chart it looks like a 3 year buffer would just about have seen you through both the dot.com and GFC crashes relatively unscathed.

Ivkoto

If you have been an investor, who has drip feeded ( DCA ) every month as most working people during the both crashes ( dot com and GFC ) the outcome would have been very positive, but if you have stopped working on 1st of January 2000 and then relying on only the money invested in S&P500 , would have been painful. But anyone with common sense, wouldn't be investing only in S&P500 until the day before retirement, especially if there is no other sources of income.
I don't see anything wrong investing now in S&P500 , if you have another 15-20 years time horizon, before retirement and in the last 5 years to start diversifying in some bonds and cash.

Hoenir

Bobziz said:

dunstonh said:

On that particular piece of software, no.    Although it could do two graphs with different dates.   I have other software that could do it but uses real client data that needs to be input and doesn't have a generic quick & easy input.   It then models it based on over 100 years of monthly data to show best through to worst case based on the asset classes of the investment funds held.         What you soon realise is that the scale of difference between best and worst is so significant that it's pointless trying to predict accurately.

I did a review yesterday, and the worst case showed money running out by age 71, and the best case showed having £2.7m by age 99.      

Ah ok, thanks. I was interested to see the difference between a 3 and 5 year cash buffer. Looking at the chart it looks like a 3 year buffer would just about have seen you through both the dot.com and GFC crashes relatively unscathed.

If you look at the red line on the chart. Between the 1st January 2000 and 31st December 2007. A UK investor didn't benefit from the recovery in the market. As the £ - $ exchange rate moved from $1.61 to $1.98. That's a negative 23% movement. Very different to the tailwind experienced more recently since the Brexit vote as the exchange rate movement proved positive. (Although has recovered somewhat since the low spot.). Cyclical movements tend to play over extended periods of time. 

IvanOpinion

dunstonh said:

I did a review yesterday, and the worst case showed money running out by age 71, and the best case showed having £2.7m by age 99.      

Darn, that is just about when my interest in wine, women and song is about to run out.