2 year investment journey so far, trying not to feel disheartened.

SneakySpectator

I've been investing for 2 years now, I started off with £500 just to test the waters and then a lump sum and then pound cost averaged in each month, then did another lump sum recently during the tariff crash so the chart looks a bit distorted but here's my progress so far. 

I was up like 26% or so at one point before the tariff crash and now I'm back down to 9.20%. I'm trying not to let it affect me and just focusing on the long term average as I will be going at this for about 20 - 25 years longer.

Despite having like 16.8% less return than before, my portfolio is literally at all time highs so I guess I should look at it that way right?

eskbanker

Fairly unremarkable volatility is nothing to be disheartened about, you'll encounter significantly worse times than this over the next 20-25 years, so if you're hoping for linear returns you're in the wrong place!

Pound cost averaging can dampen that volatility though, as seen by the actual VWRL return over the past year (if fully invested at the start):

SneakySpectator

eskbanker said:

Fairly unremarkable volatility is nothing to be disheartened about, you'll encounter significantly worse times than this over the next 20-25 years, so if you're hoping for linear returns you're in the wrong place!

Pound cost averaging can dampen that volatility though, as seen by the actual VWRL return over the past year (if fully invested at the start):

Yeah I'm hoping that by constantly buying every month, I end up with an average return, which is good enough for me and over a 25 year period should give me a really nice outcome I'm hoping. 

masonic

What happens at the start of the 25 years will be largely immaterial. It is what happens at the end that is likely to have the greatest effect.

If you were to continue to invest about £20k per year for the next 25 years, your ending portfolio could be anywhere between an inflation adjusted £800k and £3.8m based on historic returns, which would have cost you £540k in today's money, so anywhere from 1% - 8% real return (based on the 5th-95th percentile), whereas the average would have been about 5% real. So the pound cost averaging and time in the market reduced the range, but you can still end up not performing materially better than cash/bonds, even over large time horizons. Backtesting can only take you so far though, as it won't consider sequences of returns not seen before.

SneakySpectator

masonic said:

What happens at the start of the 25 years will be largely immaterial. It is what happens at the end that is likely to have the greatest effect.

If you were to continue to invest about £20k per year for the next 25 years, your ending portfolio could be anywhere between an inflation adjusted £800k and £3.8m based on historic returns, which would have cost you £540k in today's money, so anywhere from 1% - 8% real return (based on the 5th-95th percentile), whereas the average would have been about 5% real. So the pound cost averaging and time in the market reduced the range, but you can still end up not performing materially better than cash/bonds, even over large time horizons. Backtesting can only take you so far though, as it won't consider sequences of returns not seen before.

I'm sorry did you just say that I may not perform materially better than cash or bonds?! I'm assuming you meant a cash isa and not actual cash, considering cash loses value each year. 

But even now in times of good interest rate I'm only getting 4.5% return, which when you deduct inflation off that it's only like 1.7%, and bonds are not much better only recently picking up again. 

So in what universe does saving in a cash isa or government bonds work out the same as a 5% real return in a global index fund??

I'm not usually a suspicious person but when people say things like this, the only conclusion I can come to is that they don't want you to invest, they don't want you to make money. Either through jealousy or because they just don't like the stock market or something 

Labtebricolist

My suggestion would be to stop looking at it quite so often, and don’t even think about the additional impact of the decline in the value of the dollar over the past few months!  The advice given by masonic above is sensible - outcomes over the long term (which is the only time period that should matter for stock investing) can be wildly variable, but unless you get very unlucky then over time they should be considerably stronger than a cash or bond based portfolio.  

Gambling is about getting rich quick - investing is about getting rich slow.

masonic

SneakySpectator said:

masonic said:

What happens at the start of the 25 years will be largely immaterial. It is what happens at the end that is likely to have the greatest effect.

If you were to continue to invest about £20k per year for the next 25 years, your ending portfolio could be anywhere between an inflation adjusted £800k and £3.8m based on historic returns, which would have cost you £540k in today's money, so anywhere from 1% - 8% real return (based on the 5th-95th percentile), whereas the average would have been about 5% real. So the pound cost averaging and time in the market reduced the range, but you can still end up not performing materially better than cash/bonds, even over large time horizons. Backtesting can only take you so far though, as it won't consider sequences of returns not seen before.

I'm sorry did you just say that I may not perform materially better than cash or bonds?! I'm assuming you meant a cash isa and not actual cash, considering cash loses value each year. 

But even now in times of good interest rate I'm only getting 4.5% return, which when you deduct inflation off that it's only like 1.7%, and bonds are not much better only recently picking up again. 

So in what universe does saving in a cash isa or government bonds work out the same as a 5% real return in a global index fund??

I'm not usually a suspicious person but when people say things like this, the only conclusion I can come to is that they don't want you to invest, they don't want you to make money. Either through jealousy or because they just don't like the stock market or something 

No need to apologise. Understanding things like this is hard, and some people take a while to understand it. The range of possible returns from backtesting is 1% - 8% real (based on the 5th-95th percentile). If you achieve the lower bound outcome of 1% real, then that is about what you'd achieve from the long term returns of a rolling 1 year fixed term account, or bond investment. It is a misconception that cash loses value each year. In many years the best cash returns are ahead of inflation, and overall one can achieve a real return through active management of cash. This 1% real is the best you could expect from a global index tracker in 5% of universes. Only 50% of universes will give you at least a 5% real return, and you might not be living in any of them.

For transparency, 70% of my net worth is in equities and until recently it's been more like 90%, but I am much further into my investment journey than you. I'd be 100% equities if I were only 2 years in, but that does not change the fact that even drip feeding over long time horizons, you cannot rely on achieving a historical average return.

SneakySpectator

masonic said:

SneakySpectator said:

masonic said:

What happens at the start of the 25 years will be largely immaterial. It is what happens at the end that is likely to have the greatest effect.

If you were to continue to invest about £20k per year for the next 25 years, your ending portfolio could be anywhere between an inflation adjusted £800k and £3.8m based on historic returns, which would have cost you £540k in today's money, so anywhere from 1% - 8% real return (based on the 5th-95th percentile), whereas the average would have been about 5% real. So the pound cost averaging and time in the market reduced the range, but you can still end up not performing materially better than cash/bonds, even over large time horizons. Backtesting can only take you so far though, as it won't consider sequences of returns not seen before.

I'm sorry did you just say that I may not perform materially better than cash or bonds?! I'm assuming you meant a cash isa and not actual cash, considering cash loses value each year. 

But even now in times of good interest rate I'm only getting 4.5% return, which when you deduct inflation off that it's only like 1.7%, and bonds are not much better only recently picking up again. 

So in what universe does saving in a cash isa or government bonds work out the same as a 5% real return in a global index fund??

I'm not usually a suspicious person but when people say things like this, the only conclusion I can come to is that they don't want you to invest, they don't want you to make money. Either through jealousy or because they just don't like the stock market or something 

No need to apologise. The range of possible returns from backtesting is 1% - 8% real (based on the 5th-95th percentile). If you achieve the lower bound outcome of 1% real, then that is about what you'd achieve from the long term returns of a rolling 1 year fixed term account, or bond investment. That is the best you could expect in 5% of universes. Only 50% of universes will give you at least a 5% real return, and you might not be living in any of them.

For transparency, 70% of my net worth is in equities and until recently it's been more like 90%, but I am much further into my investment journey than you. I'd be 100% equities if I were only 2 years in, but that does not change the fact that even drip feeding over long time horizons, you cannot rely on achieving a historical average return.

Oh I remember this discussion from a few months ago where you said a similar thing.

And I responded that never in the history of the stock market has a 25 year period resulted in a 1% averaged return and you said that wasn't the point, it's a possibility etc etc. 

I'll take my chances with the stock market and an average expected real return of 5% than a cash isa / bond guaranteed 1.7% real return. 

boingy

Stop looking so often and stop worrying about every up and down. You have decades of time. Stay invested and mostly forget about it. If you are going to insist on looking at it every day or week then prepare yourself for one or two proper market crashes along the way. The Trump tariff wobble is just that - a wobble, not a crash. There will be plenty more wobbles too. The worst thing you can do is panic and sell. The second worst thing you can do is try to predict a crash and sell in anticipation of buying back after the crash. If it was easy to do that then we'd all be very rich. 

masonic

SneakySpectator said:

masonic said:

SneakySpectator said:

masonic said:

What happens at the start of the 25 years will be largely immaterial. It is what happens at the end that is likely to have the greatest effect.

If you were to continue to invest about £20k per year for the next 25 years, your ending portfolio could be anywhere between an inflation adjusted £800k and £3.8m based on historic returns, which would have cost you £540k in today's money, so anywhere from 1% - 8% real return (based on the 5th-95th percentile), whereas the average would have been about 5% real. So the pound cost averaging and time in the market reduced the range, but you can still end up not performing materially better than cash/bonds, even over large time horizons. Backtesting can only take you so far though, as it won't consider sequences of returns not seen before.

I'm sorry did you just say that I may not perform materially better than cash or bonds?! I'm assuming you meant a cash isa and not actual cash, considering cash loses value each year. 

But even now in times of good interest rate I'm only getting 4.5% return, which when you deduct inflation off that it's only like 1.7%, and bonds are not much better only recently picking up again. 

So in what universe does saving in a cash isa or government bonds work out the same as a 5% real return in a global index fund??

I'm not usually a suspicious person but when people say things like this, the only conclusion I can come to is that they don't want you to invest, they don't want you to make money. Either through jealousy or because they just don't like the stock market or something 

No need to apologise. The range of possible returns from backtesting is 1% - 8% real (based on the 5th-95th percentile). If you achieve the lower bound outcome of 1% real, then that is about what you'd achieve from the long term returns of a rolling 1 year fixed term account, or bond investment. That is the best you could expect in 5% of universes. Only 50% of universes will give you at least a 5% real return, and you might not be living in any of them.

For transparency, 70% of my net worth is in equities and until recently it's been more like 90%, but I am much further into my investment journey than you. I'd be 100% equities if I were only 2 years in, but that does not change the fact that even drip feeding over long time horizons, you cannot rely on achieving a historical average return.

Oh I remember this discussion from a few months ago where you said a similar thing.

And I responded that never in the history of the stock market has a 25 year period resulted in a 1% averaged return and you said that wasn't the point, it's a possibility etc etc. 

I'll take my chances with the stock market and an average expected real return of 5% than a cash isa / bond guaranteed 1.7% real return. 

You seem to have invented that exchange in your own mind. The numbers I have mentioned are based on actual historical periods, such as the period around the 1929 and 1970s depressions. Other such periods will come along in the future. Nobody knows when. If you actually stated anywhere that the stock market has never had a 25 year period with only a 1% real return, then that would have been misinformation.

It is simply preposterous to suggest that an average return or mathematical expectation is what will actually happen. It demonstrates that you have a lot to learn and an unwillingness to accept that fact. It doesn't matter how hard you believe you are certain to achieve a 5% real return from your equity investments, it won't make it so.

Once again, I am not in any way advocating using cash savings to meet your financial objectives. That would be inappropriate. But you have to accept that there is a range of possible outcomes when using equities, and if you are unlucky you may not materially beat cash returns, even drip feeding over long time horizons.

SneakySpectator

masonic said:

SneakySpectator said:

masonic said:

SneakySpectator said:

masonic said:

What happens at the start of the 25 years will be largely immaterial. It is what happens at the end that is likely to have the greatest effect.

If you were to continue to invest about £20k per year for the next 25 years, your ending portfolio could be anywhere between an inflation adjusted £800k and £3.8m based on historic returns, which would have cost you £540k in today's money, so anywhere from 1% - 8% real return (based on the 5th-95th percentile), whereas the average would have been about 5% real. So the pound cost averaging and time in the market reduced the range, but you can still end up not performing materially better than cash/bonds, even over large time horizons. Backtesting can only take you so far though, as it won't consider sequences of returns not seen before.

I'm sorry did you just say that I may not perform materially better than cash or bonds?! I'm assuming you meant a cash isa and not actual cash, considering cash loses value each year. 

But even now in times of good interest rate I'm only getting 4.5% return, which when you deduct inflation off that it's only like 1.7%, and bonds are not much better only recently picking up again. 

So in what universe does saving in a cash isa or government bonds work out the same as a 5% real return in a global index fund??

I'm not usually a suspicious person but when people say things like this, the only conclusion I can come to is that they don't want you to invest, they don't want you to make money. Either through jealousy or because they just don't like the stock market or something 

No need to apologise. The range of possible returns from backtesting is 1% - 8% real (based on the 5th-95th percentile). If you achieve the lower bound outcome of 1% real, then that is about what you'd achieve from the long term returns of a rolling 1 year fixed term account, or bond investment. That is the best you could expect in 5% of universes. Only 50% of universes will give you at least a 5% real return, and you might not be living in any of them.

For transparency, 70% of my net worth is in equities and until recently it's been more like 90%, but I am much further into my investment journey than you. I'd be 100% equities if I were only 2 years in, but that does not change the fact that even drip feeding over long time horizons, you cannot rely on achieving a historical average return.

Oh I remember this discussion from a few months ago where you said a similar thing.

And I responded that never in the history of the stock market has a 25 year period resulted in a 1% averaged return and you said that wasn't the point, it's a possibility etc etc. 

I'll take my chances with the stock market and an average expected real return of 5% than a cash isa / bond guaranteed 1.7% real return. 

You seem to have invented that exchange in your own mind. The numbers I have mentioned are based on actual historical periods, such as the period around the 1929 and 1970s depressions. Other such periods will come along in the future. Nobody knows when.

It is simply preposterous to suggest that an average return or mathematical expectation is what will actually happen. It demonstrates that you have a lot to learn and an unwillingness to accept that fact. It doesn't matter how hard you believe you are certain to achieve a 5% real return from your equity investments, it won't make it so.

Definitely not in my head.

So basically what you're saying is there is a probability (1.26%) of getting the average, which I agree, getting smack bang on the average is very unlikely, but getting somewhere close to the average is very high.

We've been over this. 



So tell me again about this 1%?