I'll show you mine if you show me yours - your portfolio!

[absolutezero]

Tell me total returners, what's a reasonable return to be aiming for in 15-20 years time, and why?

An average TR of 10.7% per annum.
Why? That's the long term return of the S&P 500.

[tjh290633]

Tell me total returners, what's a reasonable return to be aiming for in 15-20 years time, and why?

An average TR of 10.7% per annum.
Why? That's the long term return of the S&P 500.

Over how long? I only ask because I know that if you go back and measure the rate of return over ever increasing periods you will get quite wide fluctuations. I must extend the data which I have back into the last century.

TJH

[88V8]

Tell me total returners, what's a reasonable return to be aiming for in 15-20 years time, and why?

An average TR of 10.7% per annum.
Why? That's the long term return of the S&P 500.

But that was the glorious then, and this is the inglorious now.
Of course that brings us to another subset of investors, optimists and pessimists....

V8

[dealtn]

Tell me total returners, what's a reasonable return to be aiming for in 15-20 years time, and why?

An average TR of 10.7% per annum.
Why? That's the long term return of the S&P 500.

It's not a return if you don't include the negative return of inflation on your purchasing power. The answer has to be in real terms to make sense.

[CryptoPlankton]

Tell me total returners, what's a reasonable return to be aiming for in 15-20 years time, and why?

An average TR of 10.7% per annum.
Why? That's the long term return of the S&P 500.

Over how long? I only ask because I know that if you go back and measure the rate of return over ever increasing periods you will get quite wide fluctuations. I must extend the data which I have back into the last century.

TJH

Good question - the TR of the S&P 500 was actually negative over the first decade of this millennium. Who's qualified to categorically say that is less likely to reoccur over the next few years than a continuation of the unprecedented returns we've seen since then? In any event, predicting percentage returns to one decimal place strikes me as slightly ambitious!

Without wishing to add fuel to the fire, I have found (without exception) that my annual predictions for the dividend yields of my holdings have been far more accurate than for their share price return. Hence, I have been quite content to free myself from any major concerns about the short/medium term fluctuations of the latter while harvesting much of the former as "income".

Clearly, TR is what you get, but how you position yourself in terms of the balance of growth and income, and how you then choose to cash in, is purely a matter of choice - based on personal circumstances and temperament, amongst other things. Personally, I think It would be good if everyone just accepted our differences and concentrated on more cooperative discourse.

[dealtn]

Without wishing to add fuel to the fire, I have found (without exception) that my annual predictions for the dividend yields of my holdings have been far more accurate than for their share price return. Hence, I have been quite content to free myself from any major concerns about the short/medium term fluctuations of the latter while harvesting much of the former as "income".

True for the short term but over the longer term, which seems to have been defined as 15-20 years, what do you think? More companies will go to zero dividends (or 100% loss of income) than will go to zero price (or 100% loss of capital).

[CryptoPlankton]

Without wishing to add fuel to the fire, I have found (without exception) that my annual predictions for the dividend yields of my holdings have been far more accurate than for their share price return. Hence, I have been quite content to free myself from any major concerns about the short/medium term fluctuations of the latter while harvesting much of the former as "income".

True for the short term but over the longer term, which seems to have been defined as 15-20 years, what do you think? More companies will go to zero dividends (or 100% loss of income) than will go to zero price (or 100% loss of capital).

True (possibly) for individual companies but, as you know, part of the idea behind having a widely diversified portfolio is that the effect of any complete losses of either dividends or capital from individual investments won't have a catastrophic impact. At a portfolio level, which is all that really matters, I am far more confident that I can expect a more consistent average dividend return than capital return from my investments over 15-20 years. Even allowing for events like the GFC and pandemic, the annual dividend return seems remarkably consistent and unlikely to stray much outside the range of about 3-5% of the start-of-year portfolio value. Capital return per annum, on the other hand, can fluctuate wildly and I have no idea what my average return will be in the future. The S&P 500 return was negative for the "naughties" and then nearly +200% over the next decade. Do you know what it will be for the rest of the decade to 2030, let alone 2040?

Don't get me wrong, I love capital appreciation but, for reliability, I am happy to invest in a way that delivers slightly more of my preferred 'fungibles' than the market average -even if it may (arguably) impact on my potential total return.

[dealtn]

Without wishing to add fuel to the fire, I have found (without exception) that my annual predictions for the dividend yields of my holdings have been far more accurate than for their share price return. Hence, I have been quite content to free myself from any major concerns about the short/medium term fluctuations of the latter while harvesting much of the former as "income".

True for the short term but over the longer term, which seems to have been defined as 15-20 years, what do you think? More companies will go to zero dividends (or 100% loss of income) than will go to zero price (or 100% loss of capital).

True (possibly) for individual companies but, as you know, part of the idea behind having a widely diversified portfolio is that the effect of any complete losses of either dividends or capital from individual investments won't have a catastrophic impact. At a portfolio level, which is all that really matters, I am far more confident that I can expect a more consistent average dividend return than capital return from my investments over 15-20 years. Even allowing for events like the GFC and pandemic, the annual dividend return seems remarkably consistent and unlikely to stray much outside the range of about 3-5% of the start-of-year portfolio value. Capital return per annum, on the other hand, can fluctuate wildly and I have no idea what my average return will be in the future. The S&P 500 return was negative for the "naughties" and then nearly +200% over the next decade. Do you know what it will be for the rest of the decade to 2030, let alone 2040?

Don't get me wrong, I love capital appreciation but, for reliability, I am happy to invest in a way that delivers slightly more of my preferred 'fungibles' than the market average -even if it may (arguably) impact on my potential total return.

So how do you know what any future "start of year" value is going to be when you are forecasting that longer term, for your income to be 3-5% of it? Like everyone else, you can't.

For any particular year, when you get to it, you can be confident you will get that 3-5% of your then capital as an income return. But when setting a long term investment strategy if you don't consider what your investments might do over a longer period of time, then you are at the mercy of a number of consecutive one year periods. That might be comforting if you are content with only looking a single year ahead, and resetting. I for one would consider rolling one year horizons as far too short.

I would take a (portfolio of) company whose earnings were 6% of capital, paying out half as a dividend and retaining the remainder, over one that earned a constant 5% and had a 100% payout without question. Even further I would do so over one that had a variable return but had the feature of a consistent (equivalent to the original) 5% dividend regardless of earnings. That consistency of dividends would be solely down to the Board's dividend policy and not underlying earnings. The market might well judge such a company with a much more volatile share price than the smooth dividend income, and rightly so.

[CryptoPlankton]

So how do you know what any future "start of year" value is going to be when you are forecasting that longer term, for your income to be 3-5% of it? Like everyone else, you can't.

Indeed. Much of the variation in % yield is caused by the variation in capital value. What I really meant to convey was that the dividend component of the total return is less volatile (more predictable) than the "rest" of the return, which can swing from positive to negative relatively wildly.

For any particular year, when you get to it, you can be confident you will get that 3-5% of your then capital as an income return. But when setting a long term investment strategy if you don't consider what your investments might do over a longer period of time, then you are at the mercy of a number of consecutive one year periods. That might be comforting if you are content with only looking a single year ahead, and resetting. I for one would consider rolling one year horizons as far too short.

I agree, I was trying to illustrate the differences in predictability, not my investment method .

would take a (portfolio of) company whose earnings were 6% of capital, paying out half as a dividend and retaining the remainder, over one that earned a constant 5% and had a 100% payout without question. Even further I would do so over one that had a variable return but had the feature of a consistent (equivalent to the original) 5% dividend regardless of earnings. That consistency of dividends would be solely down to the Board's dividend policy and not underlying earnings. The market might well judge such a company with a much more volatile share price than the smooth dividend income, and rightly so.

Me too. I generally look for what appear to be sustainable and growing dividends based on earnings. I look at potential investments as being on a spectrum: to the right you have increasingly speculative punts on growth, based on anticipated future earnings growth (generally higher PE ratios or yet to make profits); to the left you have higher and higher yields, becoming less well covered/sustainable (as you describe). For me, the safest investments appear to be grouped around the middle. I guess my preference is for an overall portfolio that leans left of centre, but that is purely my choice and I would consider any strategy that doesn't approach either extreme at portfolio level perfectly reasonable. I would suggest that most of us are fairly centrist in this respect, rendering much of the 'argument' redundant.

[absolutezero]

Tell me total returners, what's a reasonable return to be aiming for in 15-20 years time, and why?

An average TR of 10.7% per annum.
Why? That's the long term return of the S&P 500.

Over how long? I only ask because I know that if you go back and measure the rate of return over ever increasing periods you will get quite wide fluctuations. I must extend the data which I have back into the last century.

TJH

30 years for the data I looked at to get the 10.7%

[absolutezero]

Tell me total returners, what's a reasonable return to be aiming for in 15-20 years time, and why?

An average TR of 10.7% per annum.
Why? That's the long term return of the S&P 500.

But that was the glorious then, and this is the inglorious now.
Of course that brings us to another subset of investors, optimists and pessimists....

V8

If you're an inherent pessimist Eeyore type then investing in shares is not for you.
If you think you were going to lose money then you would stay in cash. Or bonds. Or even keep it under the mattress.

[absolutezero]

In any event, predicting percentage returns to one decimal place strikes me as slightly ambitious!

It's not a prediction. It's an extrapolation from past data.
I know no more or no less than anyone else about what market returns will be, which companies will do well and which sectors will be good investments.
So the only logical thing to do is to find a long term figure (30 years in this case) for the market that makes up the bulk of the global stock market (the USA in this case) and plan around that.
As Niels Bohr said "Making predictions is difficult. Especially about the future."

If you must predict, then Tetlock's work on Superforecasting is interesting. People who make successful predictions tend to extrapolate rather than throw darts.

[Itsallaguess]

I generally look for what appear to be sustainable and growing dividends based on earnings.

I look at potential investments as being on a spectrum: to the right you have increasingly speculative punts on growth, based on anticipated future earnings growth (generally higher PE ratios or yet to make profits); to the left you have higher and higher yields, becoming less well covered/sustainable (as you describe).

For me, the safest investments appear to be grouped around the middle. I guess my preference is for an overall portfolio that leans left of centre, but that is purely my choice and I would consider any strategy that doesn't approach either extreme at portfolio level perfectly reasonable.

I would suggest that most of us are fairly centrist in this respect, rendering much of the 'argument' redundant.

Agreed.

And yet it seems such a simple courtesy not to assume that each and every income-leaning investor doesn't necessarily seek to pitch their tent at the ultra-high-yield, perhaps solely UK-centric end of that spectrum, that it's disappointing that it's not offered more often around these parts...

I would like to think that most income-investors, whilst discussing a TR-based approach with a more growth-orientated investor, would not assume that such an investor has pitched their tent firmly at the opposite, more speculative, ultra-high-PE end of that spectrum, and would surely assume, unless otherwise clearly indicated, a more centre-ground TR-based approach.

It continues to baffle me as to why such a simple courtesy isn't offered more often in return...

Cheers,

Itsallaguess

[moorfield]

So how do you know what any future "start of year" value is going to be when you are forecasting that longer term, for your income to be 3-5% of it? Like everyone else, you can't.

Indeed. Much of the variation in % yield is caused by the variation in capital value. What I really meant to convey was that the dividend component of the total return is less volatile (more predictable) than the "rest" of the return, which can swing from positive to negative relatively wildly.

I think you've articulated that quite well. That is the crux of my method, I am of course a total returner to some degree, but find it much easier to think, plan and measure progress in terms of the less volatile component of that return.

[absolutezero]

This has gone WAY off my original topic.
Posts that are off topic are usually tightly moderated. But not this one for some reason.

MODS: Could you split this into two. One discussion about XIRR etc and one about my original idea about what's in your portfolio?

[MDW1954]

Moderator Message:
I will do this later tonight. It is not a quick job. In the meantime, no further discussion of unitisation and growth rates please -- ie, don't make my job any bigger. -- MDW1954

Postscript: it wasn't a quick job. Phew!

[absolutezero]

Moderator Message:
I will do this later tonight. It is not a quick job. In the meantime, no further discussion of unitisation and growth rates please -- ie, don't make my job any bigger. -- MDW1954

Postscript: it wasn't a quick job. Phew!

Thank you.
Much appreciated.

[doug2500]

...and I'm very sorry for my part in significant thread drift.

[daveh]

...and I'm very sorry for my part in significant thread drift.

But it turned in to a very interesting discussion and thanks to MDW1954 for splitting it off to a thread of its own.

[absolutezero]

...and I'm very sorry for my part in significant thread drift.

But it turned in to a very interesting discussion and thanks to MDW1954 for splitting it off to a thread of its own.

Indeed it has.
Two decent threads for the price of one.