Final Salary Pension Transfers Mis-Selling Scandal No. 2?

GSP wrote: »

Hi dunstonh,
Drawn to your post about the value likely to drop 25% or more and being able to absorb, and having the character not to panic.
Are these falls you have seen in the more riskier higher return higher loss investments?
When I start mine off was looking to be in the middle range of investments. Can the fall you have mentioned be seen here as well over time.
Thanks

The greater the risk you take (within mainstream), historically, the greater the returns have been over the long term. This assumes you have had a structured portfolio which is will diversified. However, the greater risk means that when short term losses occur, those will be greater too.

Think about lower risk being more like a wavy line and as you take more risk, that wavy line becomes sharper zig zags where the peaks are higher and the troughs lower.

When you invest, you have to consider your capacity for loss and your behaviour when losses occur as well as what you believe your tolerance to losses are.

As mentioned with Japan, that is a possibility. Its an unlikely one at this time but a possible one. It would also need to happen to every market if you are well diversified. However, the point is that it can happen and you need to be prepared to what can happen. Can you afford it if that happens?

Back on to behaviour, some people can get cold feet seeing their value drop by £1000. Others shrug off £200,000 drops with no problem. Its a very personal thing. Partly comes from experience of investing. Your first crash can be nerve wrecking but each one after that gets easier until you eventually end up saying "here we go again" and actually see it as an opportunity.

If you have ever come across someone who says they will not invest on the stockmarket as they lost money, this usually means they invested above their risk profile and pulled out when a loss period came along and couldnt handle it. Had they waited 3-18 months, they would likely have been back in profit again. Their behaviour turned a paper loss into a real loss.

GSP wrote: »

Been seeing an average rate of 4% quoted over time given the rises and falls. What kind of %'s do we see each year up and down to achieve this average figure?
Thanks

Could easily be between minus and plus 25%

GSP wrote: »

Hi Joe,
Understand there are negative and positive years. The positives must outweigh the negatives over time otherwise we wouldn't be here.
If anyone could provide some real numbers for a run of years given an average figure of 4% has been quoted. Must be true facts behind this.
Thanks

That was an example of the ranges you asked about.

The actual ranges would depend exactly what you were invested in within your pension.

Here's the FTSE All share for the past 30+ years total return (including dividends) each year separately compared with the previous.

12.5
-2.5
-2.1
16.7
8.2
-6.7
10.9
25.0
-32.8
2.0
13.2
18.1
9.2
16.6
-25.0
-15.4
-8.0
21.2
10.9
19.7
11.7
18.5
-9.6
23.3
14.8
15.1
-14.3
30.0
6.5
4.5
22.1
12.5
-2.5

Average is about 11% but then deduct inflation,whatever that was for each year, good luck with that but that could make a big difference in some years, eg if it shows a rise of 5% but inflation was 10% in that year thats actually a loss of 5%. So all these figures need decrementing by a certain amount.

AND - its HUGELY unlikely your pension would have been invested wholly in that. It would have had several other constituents which would in some years have mitigated decreases and in others emphasized them. The only way to know what is was would be to take what your pension would have been invested in and work it out. Add on top currency fluctuations if you had overseas funds.

And, since past performance is no guide to the future, even if you could work all that out, it wouldn't help you anyway.

So, back to my original point, I think plus or minus 25% is a fair approximation of what you might expect.

GSP wrote: »

Thanks for all this Joe,
Thinking about it I should have put a different question.
My figure is from the calculators you see which can range from -1% to +5%.

What calculators are those? Any reputable company that gives numbers is just giving government mandated figures that dont really relate to anything except perhaps a lowball guesstimate of long term growth..

This is because in the past one company would give an estimate of (say) 10% and another (say) 15% when in reality no one knew, but many would inevitably see the 15% and say "oh thats better than 10% so I'll pick that one" so now everyone now has to give the exact same range of figures to stop those false comparisons, but these figures arent based on much.

GSP wrote: »

And if so what are these annually just to see the swings.

I suspect you are looking for far more certainty than its possible to get. If you want to really minimise the swings see an IFA and get them to put together a portfolio that will limit the downside which will also limit the upside. No free lunches.

Davieg are those the 'raw' performance figures of that fund or do they include your contributions?