[sidicks]

Originally Posted by domtheone

Staggering that over a 5 year period something could return next to nothing.

In that time you could have just picked 5 decent yielding shares and received back nearly 50% of your capital in dividends alone. Even allowing for some capital depreciation in that time (shares have been up and down in that period), you'd be doing ok.

DIY is the way forward now for me.

Nothing to do with the fund manager and everything to do with the markets - as MikeTV has pointed out the S&P is down 10% over the last 5 years and other markets e.g much more so. The product is an index-based product do no need or a fund manager once the structure has been established!

Plus of course the bond would likely have a capital guarantee which costs money.

5 shares paying 10% dividends with no capital risk?!

I think not....

Sidicks

[domtheone]

Originally Posted by sidicks

Nothing to do with the fund manager and everything to do with the markets - as MikeTV has pointed out the S&P is down 10% over the last 5 years and other markets e.g much more so.

Plus of course the bond would likely have a capital guarantee which costs money.

5 shares paying 10% dividends with no capital risk?!

I think not....

Sidicks

Check what I said.

I did not say 10% (several %) and I did not say capital risk (accepted capital depn risk)

[sidicks]

Originally Posted by domtheone

Check what I said.

I did not say 10% (several %) and I did not say capital risk (accepted capital depn risk)

You said get back 50% of your capital through dividends (over 5 years) = 10% per annum!

The point about capital risk was that you need to compare like with like!!

[domtheone]

Originally Posted by sidicks

You said get back 50% of your capital through dividends (over 5 years) = 10% per annum!

The point about capital risk was that you need to compare like with like!!

I said nearly. That could have been around 40%

I also said there would be some capital risk. Quite possible/probable that a number of stocks would have a SP lower today than 5 years ago.

The whole point was just to point out that the performance was pants. A fair case for saying do it yourself and avoid the fees.

[bosque]

Originally Posted by MikeTV

It's the financial crisis - the S&P500 index has lost over 10% of it's value in the past 5 years.

Grudgingly we have to accept the market performance is to blame, and the return on investments is going to be minimal; and yet somehow people like "Bob Diamond" still manage to rake in £20 million for a couple of years work, makes you wonder where that £20 million comes from if investors are getting nothing at all.

[MikeTV]

Originally Posted by bosque

Grudgingly we have to accept the market performance is to blame, and the return on investments is going to be minimal; and yet somehow people like "Bob Diamond" still manage to rake in £20 million for a couple of years work, makes you wonder where that £20 million comes from if investors are getting nothing at all.

Once upon a time, the stockmarket genuinely reflected the true value of corporations. The public only owned shares through pension funds, and so they had little control. The wealthy elite could happily make loads of money from the stockmarket, because they had all the control, and all of the information. It was their ATM. They could vote in shareholder meetings, whilst individuals had very little say, and a system that was deliberately designed to be opaque. The funds themselves were all run/owned by the wealthiest individuals, and behaved accordingly, and managed the public's life-savings for us. The market was stacked in favour of the wealthy elite, and they were all doing very nicely.

And then the "big-bang" happened. Suddenly the stockmarket playing field was levelled (to an extent). Now kids in their bedrooms were able to make better bets than the wealthiest corporations. They had all the information at their fingertips at the speed of the internet. Understandably, the wealthy elite didn't like this.

So they changed the corporate system itself and became executives and directors. Instead of value being passed on to shareholders, value was passed directly to those in charge of corporations in the form of remuneration and bonuses. Shareprices were eroded, because any profits were distributed to the wealthy elite via bonuses and remuneration. A new ATM. And boy, did those executives binge! So much so, that the corporations became completely financially unsustainable, in many cases. But they even had a plan for that eventuality too. The taxpayer would bail them out.

And so here we are. The greatest swindle on earth.

[sidicks]

Originally Posted by domtheone

I said nearly. That could have been around 40%

I also said there would be some capital risk. Quite possible/probable that a number of stocks would have a SP lower today than 5 years ago.

The whole point was just to point out that the performance was pants. A fair case for saying do it yourself and avoid the fees.

Err, it's easy to pick the right stocks with the benefit of hindsight!!

And, as explained, the fees have purchased a useful capital guarantee too!

[bosque]

Originally Posted by sidicks

Err, it's easy to pick the right stocks with the benefit of hindsight!!

And, as explained, the fees have purchased a useful capital guarantee too!

Would have been more "useful" if I'd been told to put the money into a bond paying (say 5%) interest over the five years 2007-12, trouble is that advice could have been passed on for free whereas advice about the "useful capital guarantee" of 2% came with £300 in fees.

[sidicks]

Originally Posted by bosque

Would have been more "useful" if I'd been told to put the money into a bond paying (say 5%) interest over the five years 2007-12, trouble is that advice could have been passed on for free whereas advice about the "useful capital guarantee" of 2% came with £300 in fees.

5 years ago, was it obvious that equities would perform so badly??

No-one has a crystal ball.

As longs as you were given the relevant information:
1) You can achieve a guaranteed 5% return or you can invest in the equity which has historically had higher returns than cash over longer periods)
2) If equity prices fall you will at least get your capital back.

The capital guarantee was worth 100% - equity values could have fallen to zero!!

[andyparksy]

Not sure how many on here have actual, real life experience of how the markets work, and how people look at returns from an actuarial point of view, so at the risk of sounding condescending, which I genuinely assure you I am not trying to be, but from an insiders point of view.....

Generally speaking, investments are weighted to risk, obviously with higher risk comes greater reward. Equities are generally seen to be a pretty risky investment but can target 15% returns, moving down to property at about 8% and further down gilts. The last few years haves seen the bad side with a lot of losses, but the whole "game" of investment is not necessarily to do absolute return, it is all about alpha (outperformance).

Equities have performed poorly but even property has performed the worst in living history so what is a pension investor to do? They have a lot of cash to invest, and holding over a long period, so they want to maximise the investment and use actuarial models to help. Sometimes even negative performance, over a short period, is ok as in the long run of the investment it will try to reach its goals. In its eyes an negative return is sometimes not so bad as it still gives the asset weighting desired and is potentially performing ahead of the market.

You simply cannot look at pension performance over the past few years as any measure........ Compare between by all accounts, but understand the objectives of each over a much longer timescale

[sidicks]

Originally Posted by andyparksy

Not sure how many on here have actual, real life experience of how the markets work, and how people look at returns from an actuarial point of view, so at the risk of sounding condescending, which I genuinely assure you I am not trying to be, but from an insiders point of view.....

I am an Actuary with 20 years experience of financial services and investments...

[andyparksy]

Originally Posted by sidicks

I am an Actuary with 20 years experience of financial services and investments...

An actuary........ Isn't that what people do when they find accountancy too racy and exciting?



Sorry, I know my post was a little to the point and probably seen as condescending to some, but I think understanding asset allocation / risk profiling is going to help people understand pension performance a little more

[sidicks]

Originally Posted by andyparksy

An actuary........ Isn't that what people do when they find accountancy too racy and exciting?

I've heard all the jokes - most of them better than your one!!

Originally Posted by andyparksy

Sorry, I know my post was a little to the point and probably seen as condescending to some, but I think understanding asset allocation / risk profiling is going to help people understand pension performance a little more

Agreed - I think you were a buyout on your figures though:
Typically you might expects long-term equities to produce return of around cash + 4 - 6 %. Property maybe cash plus 3-5%, fixed income (credit) maybe cash plus 2 - 3% and fixed income (governments) maybe cash plus 1 - 2%.

The volatile of actual returns around those central estimates varies significantly, particularly for the riskier assets (that's why they are risky!).

Sidicks

[andyparksy]

Sorry, poor I know, but us accountants have to try whatever we can to at least big ourselves up!

And yes, was probably talking slightly riskier on the equities, and not too much experience of that side of things, but then again I would say these days people are looking at property at more than 3-5% real, even very core stock should be targeting a bit more than that.

[bosque]

Originally Posted by andyparksy

You simply cannot look at pension performance over the past few years as any measure........ Compare between by all accounts, but understand the objectives of each over a much longer timescale

How long is "long" ? Market performance over the last 10-12 years has been negative, you'll have to come up with a new line in the script. "But sir we need to look at how your money will perform over the next 20 years, 10 years is too short a timescale."

[sidicks]

Originally Posted by bosque

How long is "long" ? Market performance over the last 10-12 years has been negative, you'll have to come up with a new line in the script.

"But sir we need to look at how your money will perform over the next 20 years, 10 years is too short a timescale."

Not sure if you're deliberately being obtuse or you continue to misunderstand - the last 10 years has been poor for the equity markets. And there's no guarantee as to what will happen over the next 10 years.

If you do not want to take that risk, don't invest in equities!

No 'script' needed - if you ask a fund manager to invest in a market that produces low or negative returns then even the bet manager will also produce low / negative returns, but positive relative returns.

[andyparksy]

Last few years have been bad for all asset classes so pensions are going to suffer, they simply cannot produce returns from nowhere, and so as has been pointed out, relative performance is seen as what is worth chasing.

This example is going to appear wrong to a lot of people but.......

Most property investment managers get benchmarked against the rest of the sector, in the uk this is often against what is known as IPD, an index of property performance across the whole sector. In 2008 people were pretty sure ipd was going to give a negative return, and some people were saying before hand it could be up to -15% for the year. It is possible to buy derivative against this ipd index though, and because of the market expectations the pricing flipped and you could at one point get ipd +7%. Effectively this means that even though you might have expected to still get a negative return (say the -15% of ipd, +7%, still giving you -8%) you were GUARANTEED to outperform ipd, and therefore would look good, relatively.

People were making investments even they thought would loose money, just not loose quite as much as the rest of the sector they were being compared against.

And yes, there are a lot of other intricacies of using things like derivatives like this that I won't go into. Am sure this might make some people unhappy, but given they have to invest somewhere, they have a lot of very clever people (yes, that will be the actuaries) deciding how much should be invested in different asset classes to maximise return, and a longer term outlook is taken, such actions can still be justified.

[bosque]

Originally Posted by sidicks

Not sure if you're deliberately being obtuse or you continue to misunderstand - the last 10 years has been poor for the equity markets. And there's no guarantee as to what will happen over the next 10 years.

If you do not want to take that risk, don't invest in equities!

No 'script' needed - if you ask a fund manager to invest in a market that produces low or negative returns then even the bet manager will also produce low / negative returns, but positive relative returns.

That's not what your huckster pals say on the highstreet. What I don't want from the fund managers is for them to pull out their charts and show me how long term investment in the stock market is the best route for my money, I'm sorry if that upsets you but that's what happens when the customer books an appointment with his bank or building society's "senior finance expert".

[andyparksy]

But, generally speaking, they do give the best returns.

Obviously they are also the most volatile though, but the idea is that holding for a longer period can iron out some of the volatility.

The past few years have been very poor, but relatively speaking nothing has happened to asset allocation methodology that is going to change the relative performance, again, generally speaking.

If you feel strongly that for whatever reason certain assets are going to better than others in the short term, then go ahead and micro manage your investments to suit, but as long as they are pointing out the increased volatility alongside the returns, which I have always seen them do, I have no problems with how they describe them

[bosque]

That's going to be the dilemma for the ordinary guy, he can't trust a word the finance advisor says because he knows from sad experience they're only in it for what they can screw from joe public, so a lot of cash is going to be sitting in bank accounts doing very little.