Real rate of return

[anniesdad]

Hi All, long time lurker here. Not FIRE ‘d yet I normally review my finances over the Xmas break but this year there is as more procrastination than usual as I was a bit scared to. I’ve been investing with Fidelity platform for 10 years now and I was quite interested to see on my home page my annualised return is 5.6%. I’m not drawing any income and just letting the investments grow.

I thought it might help people as a common question is what rate is sustainable. It’s also useful because 1. I am very far from an expert, and 2. The last 10 years is commonly thought of as being disastrous for investing.

I will add that I diversify and don’t take massive risks. I’m pleasantly pleased with 5.6% pa over 10 years bearing in mind where the world is today.

I hope someone finds this useful. Happy new year everyone.

[tikunetih]

The last 10 years is commonly thought of as being disastrous for investing.

?

Surely only by casual onlookers not participating themselves.

Really, this nearly 12 year bull market has been one of the easiest ever environments in which to make money for investors, due largely to the asymmetric risk arising from central banks underwriting stock markets and other risk assets: "heads you win, tails you get rate cuts / QE and just win later".

[xxd09]

I would have said that the general consensus was the last 10 years were good investment years if you were globally invested
If you were mainly U.K. invested then times have been indeed less productive
Therefore a 5.6% return is not really too good-even the most conservative globally invested portfolios will have done much better
My Vanguard Global Bond Index Fund hedged to the Pound (VIGBBD) which mainly is for for reducing volatility in my portfolio managed over 4% pa and that is a bond fund only
It would be interesting to see the constituents of your portfolio
xxd09

[swill453]

The last 10 years is commonly thought of as being disastrous for investing.

Not by everyone. Within the last 10 years I've retired on 100% stock market investments, funded my wife and my lifestyle from its income alone, and our net worth has increased over the period.

And no, we didn't start with a million, the retirement decision was with acceptance of quite a high risk.

Scott.

[Charlottesquare]

As a benchmark I target 7-8% p.a. compound (aim to double my money every 10 years) and have in the main managed it over last circa 12 years, ie my original money invested back then (though there has also been a trickle of new funds injected) is currently circa 3 times the 2008 sum invested. This seems to be achievable in equities with dividends reinvested. (Although in March after the drop I was not that much more than 2 times the 2012 figure)

[James]

Not claiming any cleverness, as I'm very much a hands-off passive investor, but my portfolio has done 9.8% IRR since 2010, and even my pension has managed a post-fees return of 7.6% since 2005.

[staffordian]

FWIW My current portfolio of ITs, mainly income but with a couple of growth ITs was started in October 2016 and is currently showing 6.4% annual return, all dividends are reinvested.

I previously had an HYP but, like most, I assume, I don't monitor my "what ifs"

[Joe45]

The last 10 years is commonly thought of as being disastrous for investing.

Not sure where you get this idea. On the contrary; the past 10 years has been a virtually uninterrupted bull.

[tjh290633]

The last 10 years is commonly thought of as being disastrous for investing.

Not sure where you get this idea. On the contrary; the past 10 years has been a virtually uninterrupted bull.

Did the high point in the FTSE100 in 2017-18 pass you by? There have been 4 peaks since the high at the end of 1999, one in 2007, a minor one in 2011, another in 2015 and the last in late 2017. Were those not interruptions in the bull run, considering that we have not yet breached the previous high?

Certainly there has been a very good rise since the low point in February 2009 there has been an overall upward trend, but that depends on picking the low point. Having said that, my accumulation unit has more than doubled over the last 10 years, with an IRR of 8.62%.

TJH

[Arborbridge]

The last 10 years is commonly thought of as being disastrous for investing.

Commonly? I wouldn't think so, unless they have been on another planet. The last few years have been poor for UK equities - broadly since the Brexit referendum - but in the past ten years markets around the world have been on a bull run which was only brought to a screaming halt by Covid- as you can see here, for the FTSE:-



As ever, it depends where you choose to stop and start the clock, but I'd say the past ten years were pretty good. Some would say the crash stimulated by Covid was well overdue - bull runs do not go on for ever.

Arb.

[Bubblesofearth]

Commonly? I wouldn't think so, unless they have been on another planet. The last few years have been poor for UK equities - broadly since the Brexit referendum - but in the past ten years markets around the world have been on a bull run which was only brought to a screaming halt by Covid- as you can see here, for the FTSE:-



As ever, it depends where you choose to stop and start the clock, but I'd say the past ten years were pretty good. Some would say the crash stimulated by Covid was well overdue - bull runs do not go on for ever.

Arb.

(with an Australian accent and the appropriate headgear)...

Nah, that's not a bull run. This is a bull run;

https://www.hl.co.uk/shares/stock-marke ... /dow-jones

BoE

[EthicsGradient]

For reference - the average total rates of return of the main FTSE indices over 10 years to Dec 31, 2020 - from https://research.ftserussell.com/Analyt ... nual=false

FTSE 250 8.8%
FTSE100 4.8%
FTSE 350 5.4%
FTSE Small Cap 9.8%
FTSE All-share 5.6%

[Joe45]

The last 10 years is commonly thought of as being disastrous for investing.

Not sure where you get this idea. On the contrary; the past 10 years has been a virtually uninterrupted bull.

Did the high point in the FTSE100 in 2017-18 pass you by? There have been 4 peaks since the high at the end of 1999, one in 2007, a minor one in 2011, another in 2015 and the last in late 2017. Were those not interruptions in the bull run, considering that we have not yet breached the previous high?

Certainly there has been a very good rise since the low point in February 2009 there has been an overall upward trend, but that depends on picking the low point. Having said that, my accumulation unit has more than doubled over the last 10 years, with an IRR of 8.62%.

TJH

I don’t view the FTSE 100 as representative of “the market” merely a very small part of it. Have a look at MSCI World index between 2010 and 2020. Even this year has been good for global equities. The Covid crash constituted the shortest bear in history.

[tjh290633]

I don’t view the FTSE 100 as representative of “the market” merely a very small part of it. Have a look at MSCI World index between 2010 and 2020. Even this year has been good for global equities. The Covid crash constituted the shortest bear in history.

Good for a very small subset of them, which have swamped the general market. I think that you need to exclude the FAANGS effect.

TJH

[Joe45]

Russell 2000 up 20% this year and 200% over last 10 years.

[scrumpyjack]

Nobody seems to have mentioned it, but I would take 'real rate of return' to be the rate after taking into account inflation?

[anniesdad]

Thanks fir responses. Feel a bit daft. Probably should go back to just lurking. Well I’m actually pleased to see that I’m under achieving because that means that FIRE is more realistic than I thought

[monabri]

Feel a bit daft. Probably should go back to just lurking

No, please don't! There's no harm in asking a question.

[kempiejon]

Hi All, long time lurker here. Not FIRE ‘d yet I normally review my finances over the Xmas break but this year there is as more procrastination than usual as I was a bit scared to. I’ve been investing with Fidelity platform for 10 years now and I was quite interested to see on my home page my annualised return is 5.6%. I’m not drawing any income and just letting the investments grow.

……...

Thanks fir responses. Feel a bit daft. Probably should go back to just lurking. Well I’m actually pleased to see that I’m under achieving because that means that FIRE is more realistic than I thought

That first sentence is from the original post - if you can continue with 5% annualised return rather than year on year it has been falling from a higher rate and averaging down. If that is a reasonably repeatable average over the decade it seems to suggest you could take towards 5% of the portfolio value as a sustainable income.

Your second sentence worries you're underperforming, well not necessarily, you're beating cash and inflation, if you didn't take too much risk and your money has grown in real terms that's a win. Me, I do what I can to avoid fees and taxes and invest globally in quoted companies. I have been doing a little better than 5% but we all have ups and downs in investing and if your style is low risk your chance of a big gain may well be reduced but your capital is probably safer. Perhaps as you approach FIRE it's worth noting what that rate of return is so you can see if it changes. Depending on where your money is it might be a different number in 12 months. I know my portfolio total was adrift by over 30% earlier in the year.
The question is would a 5% withdrawal rate satisfy your income needs? If not for how much longer can you invest, at what level and when will you get there?

[anniesdad]

Thank you. My real reason for lurking on here is that I wanted to see what rate of return is realistically achievable in the long term and in the future ie after ironing out peaks and troughs. Crystal ball sort of knowledge needed. I don’t want too much effort, skill and intervention and stress. I also invest in buy to let which has more intervention stress etc. So to sum it all up I think a 10 year test gives me some confidence and 5 or 6 % works for me. Thanks all.