Best way to compare pension funds for long term growth?

Alexland

Zerforax said:

I agree paying more like-for-like makes no sense but if a fund/provider is able to manage higher growth then paying more in charges would still be worth it? 

It's counter intuitive but when picking investments you usually get what you don't pay for.

Here's a video from about a decade ago to make you never want to pay high fees again.

https://www.youtube.com/watch?v=SwkjqGd8NC4

I'm not saying you should just buy an index tracker fund as that might not suit your risk appetite but there are low cost multi asset funds or it's possible to construct low cost DIY portfolios that should do very well for you over the long term. It's about getting as close as possible to the source of market returns with minimal fees.

Veloflyer

My basic yardstick/comparator is the S&P 500. Specifically the CSP1 low cost tracker from i shares. If other more diverse or less risky funds do not come close to CSP1 costs or growth then I don't invest. Most of my funds are therefore a slight variation of the S&P plus a few global fund trackers with slight variations. Naturally past performance is no guarantee etc, but the diversity and risk profile works for me. 

Alexland

Veloflyer said:

My basic yardstick/comparator is the S&P 500. Specifically the CSP1 low cost tracker from i shares. If other more diverse or less risky funds do not come close to CSP1 costs or growth then I don't invest. Most of my funds are therefore a slight variation of the S&P plus a few global fund trackers with slight variations. Naturally past performance is no guarantee etc, but the diversity and risk profile works for me. 

If you limit your investment selection to only things that have recently performed around as well as the S&P500 then you are going to be taking a lot more risk than most retail investors would be happy with. It's been a while but there are whole decades where US equities have unperformed the rest of the world.

Sure I get the argument that over history the decades where the US outperforms were more common than the decades where the US underperforms but our lives are finite and there's no guarantee that will continue and you don't get the time back for the decades where the thing you invested in doesn't perform very well.

Given current market valuations I'd advocate most personal investors should have a diversified portfolio that allows them to blend the attractive yields on fixed income with the potential long term global equity market returns (even if US shares are looking rather overvalued) getting some advantage from rebalancing opportunities that may occur.

dunstonh

My basic yardstick/comparator is the S&P 500. Specifically the CSP1 low cost tracker from i shares. If other more diverse or less risky funds do not come close to CSP1 costs or growth then I don't invest

Over what period?

This cycle  has favoured US equities.  The cycle before that favoured global.      History shows global ex US vs US alternating as to which is best.     Currency movements, which tend to play out over longer periods, are often a key part of the reason.

So, if you using past performance that only includes the 15 years prior to 2025, then not much would have beaten US.     

At some point, we are likely to see 10-15 years of US equities underperforming global ex US.  It may have already started as 2025 has the US as the worst-performing major country/region for UK (GBP) investors, but only time will tell if it's the start of the next cycle or not.

Veloflyer

Alexland said:

Veloflyer said:

My basic yardstick/comparator is the S&P 500. Specifically the CSP1 low cost tracker from i shares. If other more diverse or less risky funds do not come close to CSP1 costs or growth then I don't invest. Most of my funds are therefore a slight variation of the S&P plus a few global fund trackers with slight variations. Naturally past performance is no guarantee etc, but the diversity and risk profile works for me. 

If you limit your investment selection to only things that have recently performed around as well as the S&P500 then you are going to be taking a lot more risk than most retail investors would be happy with. It's been a while but there are whole decades where US equities have unperformed the rest of the world.

Sure I get the argument that over history the decades where the US outperforms were more common than the decades where the US underperforms but our lives are finite and there's no guarantee that will continue and you don't get the time back for the decades where the thing you invested in doesn't perform very well.

Given current market valuations I'd advocate most personal investors should have a diversified portfolio that allows them to blend the attractive yields on fixed income with the potential long term global equity market returns (even if US shares are looking rather overvalued) getting some advantage from rebalancing opportunities that may occur.

Is it not fair to say the S&P has done rather well over the past 20 years or so? I get that may not continue, but the risk (to me) is acceptable, albeit diversity here is of course limited to the US. To me though, overall risk is still acceptable. I also have global trackers as a foil to any wobbles on the S&P, but as the US is around 70% of global capital, any dive in the S&P is likely to affect everything else n'est ce pas?

In addition, I have been thinking of transitioning 50% over to ILGs to protect what I have. At present I see no immediate threat of a market crash, but for sure I do need to cross that bridge...

ColdIron

Veloflyer said:

My basic yardstick/comparator is the S&P 500.

As Marko from Taken said: Good luck

Veloflyer

dunstonh said:

My basic yardstick/comparator is the S&P 500. Specifically the CSP1 low cost tracker from i shares. If other more diverse or less risky funds do not come close to CSP1 costs or growth then I don't invest

Over what period?

This cycle  has favoured US equities.  The cycle before that favoured global.      History shows global ex US vs US alternating as to which is best.     Currency movements, which tend to play out over longer periods, are often a key part of the reason.

So, if you using past performance that only includes the 15 years prior to 2025, then not much would have beaten US.     

At some point, we are likely to see 10-15 years of US equities underperforming global ex US.  It may have already started as 2025 has the US as the worst-performing major country/region for UK (GBP) investors, but only time will tell if it's the start of the next cycle or not.

I still have faith in the US to deliver. Perhaps not as much as previous, but if considering changing the philosophy, I would be unsure if something like global ex US would pose a greater risk  - not something I want at my time of life and when thinking of consolidating some of the pot into ILGs to protect what I have.

Alexland

Veloflyer said:

Is it not fair to say the S&P has done rather well over the past 20 years or so?

That's certainly been the case for the past 15 years or so but if you look back further (sorry the below graph doesn't have the most recent 4 years) you can see it alternates between US and rest of world and those periods where the US underperforms must be pretty miserable if you have overweighted it in your portfolio.

If you already hold global trackers then they will already be heavy to the US so there is no need to buy separate S&P500-like funds. US shares are currently looking expensive from a PE ratio perspective (similar to how bonds were looking expensive until recently from a yield perspective before they recently crashed) which makes continued outperformance even less probable.

I don't know when the next US and/or global equity market crash will be or how long it will take to recover but it's been a while (excluding the covid mini-crash) so wonder if investors are losing their memory of the last time it took a very long time to recover.

Bond yields are attractive again so there is less opportunity cost to being diversified. A few years ago I was arguing bonds shouldn't be touched with a barge pole and people should look for alternative forms of diversification or accept more equity risk. Anything gets risky when it gets overvalued. I wouldn't be put off by how bond funds have basically had no return over the past 5 years it's an opportunity now.

Veloflyer

Alexland said:

Veloflyer said:

Is it not fair to say the S&P has done rather well over the past 20 years or so?

That's certainly been the case for the past 15 years or so but if you look back further (sorry the below graph doesn't have the most recent 4 years) you can see it alternates between US and rest of world and those periods where the US underperforms must be pretty miserable if you have overweighted it in your portfolio.

If you already hold global trackers then they will already be heavy to the US so there is no need to buy separate S&P500-like funds. US shares are currently looking expensive from a PE ratio perspective (similar to how bonds were looking expensive until recently from a yield perspective before they recently crashed) which makes continued outperformance even less probable.

I don't know when the next US and/or global equity market crash will be or how long it will take to recover but it's been a while (excluding the covid mini-crash) so wonder if investors are losing their memory of the last time it took a very long time to recover.

Bond yields are attractive again so there is less opportunity cost to being diversified. A few years ago I was arguing bonds shouldn't be touched with a barge pole and people should look for alternative forms of diversification or accept more equity risk. Anything gets risky when it gets overvalued. I wouldn't be put off by how bond funds have basically had no return over the past 5 years it's an opportunity now.

Interesting stuff - thanks. I started mainly investing in the US from around 2010 and I don't think I have done badly from it. At present, I see no present reason to change the philosophy, but for sure one needs to be aware of the potential need to change it. Were I to move into ILGs , then perhaps the US based funds could be sacrificed to pay for them.    

dunstonh

Is it not fair to say the S&P has done rather well over the past 20 years or so?

No. About 13 years that the US switched to being better than Global.   The chart in the above post gives a good indication.

 I get that may not continue, but the risk (to me) is acceptable, albeit diversity here is of course limited to the US. 

You are betting against history using recent past performance and not long term past performance.

. I also have global trackers as a foil to any wobbles on the S&P, but as the US is around 70% of global capital, any dive in the S&P is likely to affect everything else n'est ce pas?

It is undoubtedly the case that markets will follow during the fear stage but they will diverge.

For example, just look at this year with the Trump Slump: (US is blue F):



They all went down with the Trump Slump but as is typical, the country/region affected the most stays down for longer.     If tech is the cause of the next unwind, then expect US to go further and longer.

You can still be passive and tilt away from US.   The current global market cap has pushed US to very high and uncomfortable weightings.

I still have faith in the US to deliver. Perhaps not as much as previous, but if considering changing the philosophy, I would be unsure if something like global ex US would pose a greater risk 

You wouldnt switch to global ex US (although it would have done much better than US this year).   You would just reduce the weighting to US to something more historically comfortable.   Currently, you are holding a global fund that includes a heavy US weighting, PLUS a further US holding, which increases it further.