Newbie Q re returns on investment

I already know the answer is "It depends..."! but would folk humour me and tell me what sort of returns I can expect from investments - I'm new to all this and simply need a ballpark figure to kick off my expectations. I'm talking about assets of around 400,000 pounds and am looking to get a monthly income - what are realistic expectations? I know it all depends on my attitude to risk and ethics etc. etc. but I honestly don't yet have a handle on the sort of rates of return I'm likely to get - 1%, 5%, 10%, 25%... any clues?
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  • Linton
    Linton Posts: 17,065
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    edited 19 May 2017 at 11:48AM
    Based on a 100 years of history a reasonable long term sustainable drawdown increasing with inflation could be around 3.5% of the initial pot size per year if you werent prepared to accept some variability of income depending on market conditions rising to perhaps 6% if you were. Normally you should be able to get higher returns, however problems arise when drawing down at a time when prices are falling as you are cutting into the base investment you need for future income. Of course the next few decades may be quite different to the past 100 years. So there is significant risk in those figures.

    In either case you would need good investment skills to safely maintain those numbers and not be overcautious in your investments. For an amount the size of £400K and with your lack of financial experience I strongly suggest you talk to an IFA.
  • ColdIron
    ColdIron Posts: 8,902
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    What fuel mileage can I expect from car?

    Your return is largely up to you but 3.5% plus inflation wouldn't be an outlandish expectation as long as you aren't trying to shoot the lights out
  • dunstonh
    dunstonh Posts: 116,040
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    edited 3 June 2017 at 11:01AM
    It cannot be put in a simplistic way you want.

    You need to look at the risk profile of the investments. Lower risk investments will be less volatile but typically result in the lower returns over the long term. Higher risk will be higher in volatility but typically result in higher returns over the long term (and by higher risk, I am referring to mainstream conventional - you can go stupidly high risk which can become speculative and have a complete wipe out possible)

    There are risk scales. The best ones benchmark cash to 1 and the highest risk conventional unit linked options to 10. (This allows the specialist and speculative to not be included and distort the scale). So, you would need to consider where you are on the risk scale. This is not just about saying you can accept a loss. It is one thing to say you can but its another when your £400k invested turns into £300k in the space of a week. You also need to be able to afford it. Some say there is no point taking more risk than you need to. Some believe their money should work for them whether they need it or not.

    On the criteria you have given, you could expect anything from minus 80% to plus 80% in any given 12 month period. Hence you need to narrow down risk profile etc to get any meaningful answer.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • AndyT678
    AndyT678 Posts: 757
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    Linton wrote: »
    Based on a 100 years of history a reasonable long term sustainable drawdown increasing with inflation could be around 3.5% of the initial pot size if you werent prepared to accept some variability of income depending on market conditions rising to perhaps 6% if you were. Normally you should be able to get higher returns, however problems arise when drawing down at a time when prices are falling as you are cutting into the base investment you need for future income. Of course the next few decades may be quite different to the past 100 years. So there is sitgnificant risk in those figures.

    Whilst the numbers above are perfectly reasonable figures for a long run average you also need to recognise that returns in any individual year could be in a range from about -50% to +30%, especially if you're targeting the 6-7% long term average.
  • Linton
    Linton Posts: 17,065
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    AndyT678 wrote: »
    Whilst the numbers above are perfectly reasonable figures for a long run average you also need to recognise that returns in any individual year could be in a range from about -50% to +30%, especially if you're targeting the 6-7% long term average.

    Indeed - my comments are based on the need for monthly income rather than the returns in a random year.
  • bostonerimus
    bostonerimus Posts: 5,617
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    edited 19 May 2017 at 12:33PM
    Linton wrote: »
    Based on a 100 years of history a reasonable long term sustainable drawdown increasing with inflation could be around 3.5% of the initial pot size per .

    If you have 60% equities and 40% bonds then you can probably sustain a 3.5% inflation linked drawdown for 30 years.

    If you are talking about the average annual return of a 60/40 portfolio then I's say 5% or 6% would be a conservative estimate for planning purposes.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • simonineaston
    simonineaston Posts: 185 Forumite
    Just as a post script to this thread, where would folk keep their investment pot while they are deciding what to do with it? Obviously, there are better places to keep it - albeit temporarliy - than one's no / low interest current account, and at the same time, it doesn't seem to make sense to tie it all up in various complicated places, if it's all going to end up in other places, following the dleiberations of one's IFA!
    At the moment, my pot is sitting quietly in a Barclays Everday Saver, which attracts an AER of 0.05... although I'm just about to ring them to see if they can offer a better rate in another account!
  • AlanP_2
    AlanP_2 Posts: 3,250
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    £400k with one provider exceeds the FSCS protection limit pf £85k so either spreading it across a few different, non-linked institutions would be safer.

    NS&I is recommended on here quite often for short-term, high value as limit doesn't apply I think - If you trust HM Government.
  • Audaxer
    Audaxer Posts: 3,506
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    At the moment, my pot is sitting quietly in a Barclays Everday Saver, which attracts an AER of 0.05... although I'm just about to ring them to see if they can offer a better rate in another account!
    That interest rate is only going to get you £200 per annum on £400,000. Even on a temporary basis you need to split it between various banks to get the FCSC protection of £85k in each. At the very least you should be able to get 1% without any difficulty - that's £4,000 per annum - while you consider speaking to various IFAs. Even if you do go through the IFA route, it would be worthwhile learning as much as you can on here so you can ask relevant questions so as you are not going to end up paying excessive costs.
  • bostonerimus
    bostonerimus Posts: 5,617
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    Just as a post script to this thread, where would folk keep their investment pot while they are deciding what to do with it? Obviously, there are better places to keep it - albeit temporarliy - than one's no / low interest current account, and at the same time, it doesn't seem to make sense to tie it all up in various complicated places, if it's all going to end up in other places, following the dleiberations of one's IFA!
    At the moment, my pot is sitting quietly in a Barclays Everday Saver, which attracts an AER of 0.05... although I'm just about to ring them to see if they can offer a better rate in another account!

    Leave the money in the bank until you have a plan.

    What exactly is your situation/......how old are you? are you working, how much income do you need and for how long? Do you own a home.......do you want to......do you have other investments in a pension or ISA? Are you ok with taking some risk to have a chance of higher returns?
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
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