What percentage of investors achieve these returns?

[hiriskpaul]

Just doing some basic research on expected returns. This article https://www.thebalance.com/good-rate-roi-357326 sugggests shares typically generate about 7% per year, property 10%. Looking at FTSE100 as a whole, returns ave around 3.9% over last 5 years, 8.8% over 10 years , 3.2% a year over 20 years and 6.4% over 25 years but *only with dividends reinvested*. Without dividends its 0% over last 5 years according to https://www.ig.com/uk/trading-strategie ... 00--190318. US equivalent is here https://www.getrichslowly.org/stock-market-returns/. There is also inflation and tax to consider.

So coming to my question, what percentage of stockmarket investors would make the following (after tax, including dividends if applicable) consisently (?ave over 5 years). Before some giant claims roll in remember Berkshire Hathaway averages 20.5% (albeit for more than 50years!)

-10% or lower
-10% to 0%
0 to 5% (slightly below market ave)
5 to 10% (slightly above)
10 to 20% (significantly above)
20% or higher (way above)

Most people expect 10% but realistically? https://www.thisismoney.co.uk/money/inv ... -year.html

This question reminds me of when during the poker boom it was suggested that under 5% of online poker players were profitable. There followed much indignation, but despite the massive data harvesting going on at the time absolutely no refutation.

What the game pays out on average may prove to be a very bad guide to what the average player is paid, and the chances of ever getting better than self reported data on a significant number of investors seem somewhat slim.

Indeed.

Looking at the last 50 years, the MSCI World index gross annualised return, dividends reinvested, was 10.9%. Some of that was due to the depreciation of the pound against other currencies, which may or may not repeat itself over the next 50 years. In dollar terms the annualised return was 9.6%. So the linked article suggesting 10% is probably not too unrealistic as an expectation for future stock market returns. However, most investment portfolios do worse than average. For example, over the last 10 years, according to SPIVA research, about 90% of US funds underperformed their benchmarks. But it gets worse still. Most private investors significantly underperform the market, for a variety of reasons. You might find this paper on the behaviour of individual investors interesting:

https://faculty.haas.berkeley.edu/odean ... estors.pdf

Conclusion

The investors who inhabit the real world and those who populate academic models are distant cousins. In theory, investors hold well-diversified portfolios and trade infrequently so as to minimize taxes and other investment costs. In practice, investors behave differently. They trade frequently and have perverse stock selection ability, incurring unnecessary investment costs and return losses. They tend to sell their winners and hold their losers, generating unnecessary tax liabilities. Many hold poorly diversified portfolios, resulting in unnecessarily high levels of diversifiable risk, and many are unduly influenced by media and past experience. Individual investors who ignore the prescriptive advice to buy and hold low-fee, well-diversified portfolios, generally do so to their detriment.

[BobbyD]

You might find this paper on the behaviour of individual investors interesting:

https://faculty.haas.berkeley.edu/odean ... estors.pdf

Conclusion

The investors who inhabit the real world and those who populate academic models are distant cousins. In theory, investors hold well-diversified portfolios and trade infrequently so as to minimize taxes and other investment costs. In practice, investors behave differently. They trade frequently and have perverse stock selection ability, incurring unnecessary investment costs and return losses. They tend to sell their winners and hold their losers, generating unnecessary tax liabilities. Many hold poorly diversified portfolios, resulting in unnecessarily high levels of diversifiable risk, and many are unduly influenced by media and past experience. Individual investors who ignore the prescriptive advice to buy and hold low-fee, well-diversified portfolios, generally do so to their detriment.

Thanks. I curtailed a longer reply to avoid the risk of it turning in to an essay and taking things off track, but the conclusions of that paper align closely with my natural prejudices. I'll read the rest when i get a chance.

[Arborbridge]

Well moorfield, you worry too much if you are concerned about your investment returns every day of the year. It matters not a whit if you worry or not, especially whilst the market is closed.

As to celebrating Christmas on the Gregorian 7 January, that is fine but are you not being a bit eccentric by sticking to the old Julian calendar which has not been in common use here in the UK for nearly 270 years? I have no problems with that of course as you will clearly be an Orthodox Christian in these circumstances. In wishing everyone a Merry Christmas you will note that I did not specify a date and for you to mention your date suggests an assumption which is entirely unwarranted. I embrace all Christians in my good wishes.

Dod

I believe another, and more ancient, day for celebration, dtinking and generally running amock was 12th night - 5th January. Add to that two alternative dates for everything due to change of calendar

Add to that two alternative dates for everything due to change of calendar. then this stacks up to many days on which we have an excuse for merriment.

Except for Ian Pickering who lives where they currently have a plague of geese - or so I hear. But maybe he can catch one for the pot, provided he doesn't picker too long in his choice




Arb,

[colin]

You might find this paper on the behaviour of individual investors interesting:

https://faculty.haas.berkeley.edu/odean ... estors.pdf

Conclusion

The investors who inhabit the real world and those who populate academic models are distant cousins. In theory, investors hold well-diversified portfolios and trade infrequently so as to minimize taxes and other investment costs. In practice, investors behave differently. They trade frequently and have perverse stock selection ability, incurring unnecessary investment costs and return losses. They tend to sell their winners and hold their losers, generating unnecessary tax liabilities. Many hold poorly diversified portfolios, resulting in unnecessarily high levels of diversifiable risk, and many are unduly influenced by media and past experience. Individual investors who ignore the prescriptive advice to buy and hold low-fee, well-diversified portfolios, generally do so to their detriment.

Thanks. I curtailed a longer reply to avoid the risk of it turning in to an essay and taking things off track, but the conclusions of that paper align closely with my natural prejudices. I'll read the rest when i get a chance.

There was a similar study of US investors a few decades ago which found that male university educated professionals suffered worse returns on their 401k retirement accounts than blue collar workers who did not feel confident enough to tinker with their retirement portfolios.

[BobbyD]

There was a similar study of US investors a few decades ago which found that male university educated professionals suffered worse returns on their 401k retirement accounts than blue collar workers who did not feel confident enough to tinker with their retirement portfolios.

One of the reasons I doubt that any significant amount of reasonable data can be assembled concerning the distribution of investor returns is that I wouldn't consider returns on a part of an investor's portfolio to be very meaningful. What professionals do with their 401k's compared to blue collar workers might speak toward a generalised benefit of inaction over action, or any number of other variables, but it doesn't say anything about their total returns as investors.

[colin]

There was a similar study of US investors a few decades ago which found that male university educated professionals suffered worse returns on their 401k retirement accounts than blue collar workers who did not feel confident enough to tinker with their retirement portfolios.

One of the reasons I doubt that any significant amount of reasonable data can be assembled concerning the distribution of investor returns is that I wouldn't consider returns on a part of an investor's portfolio to be very meaningful. What professionals do with their 401k's compared to blue collar workers might speak toward a generalised benefit of inaction over action, or any number of other variables, but it doesn't say anything about their total returns as investors.

What?

[stevensfo]

I believe another, and more ancient, day for celebration, dtinking and generally running amock was 12th night - 5th January. Add to that two alternative dates for everything due to change of calendar

Add to that two alternative dates for everything due to change of calendar. then this stacks up to many days on which we have an excuse for merriment.

Except for Ian Pickering who lives where they currently have a plague of geese - or so I hear. But maybe he can catch one for the pot, provided he doesn't picker too long in his choice

Arb,

That date goes back thousands of years and was used by Shakespeare in his 'Twelfth Night'. By the way, please watch the 'Globe' version with Stephen Fry and Colin Ball, the actor who played Trigger in Only Fools...!

It's when the Bishop would give his regalia to a boy from the cathedral, and they would parade through the town having a great time. Masters would become servants and vice-versa. It was one day of crazy enjoyment and kept the plebs happy.

We also have the 6th January, Epiphany as a holiday, when the wise men arrived with gifts. You plebs in the UK don't have this, but we have it in Italy, so nyanyanyanana!

Steve

[kempiejon]

Colin Ball, the actor who played Trigger in Only Fools...!

Roger Lloyd Pack was the actor, Colin is Trigger's real name.

[TUK020]

Looking at the last 50 years, the MSCI World index gross annualised return, dividends reinvested, was 10.9%. Some of that was due to the depreciation of the pound against other currencies, which may or may not repeat itself over the next 50 years. In dollar terms the annualised return was 9.6%. So the linked article suggesting 10% is probably not too unrealistic as an expectation for future stock market returns.

hiriskpaul,
do you have this in inflation adjusted terms?
Over the last 50 years we have had wildly different inflation environments, which skew the figures to the point of making them meaningless.
tuk020

[colin]

Looking at the last 50 years, the MSCI World index gross annualised return, dividends reinvested, was 10.9%. Some of that was due to the depreciation of the pound against other currencies, which may or may not repeat itself over the next 50 years. In dollar terms the annualised return was 9.6%. So the linked article suggesting 10% is probably not too unrealistic as an expectation for future stock market returns.

hiriskpaul,
do you have this in inflation adjusted terms?
Over the last 50 years we have had wildly different inflation environments, which skew the figures to the point of making them meaningless.
tuk020

very good point, average uk inflation over 50 years was 5.74%. Giving a real return around 4% and that would seem to me a reasonable expectation going forward.

https://www.officialdata.org/uk/inflation/1969?amount=1

[colin]

Sorry to go off topic but it amuses me that the evening before the shortest day and 3 days before Christmas we are (or at least some of us are) concerned about our investment returns! Someone may have beaten me to it, but may I wish all a very Merry Christmas and whilst I am at it a healthy and prosperous New Year (in that order, as Robin Angus of PAT would say)

Dod

And Santa has been down the chimney with a stock market rally in the sack. Ho Ho Ho Merry Christmas everybody!

[stevensfo]

Colin Ball, the actor who played Trigger in Only Fools...!

Roger Lloyd Pack was the actor, Colin is Trigger's real name.

Yes, sorry about that. I couldn't quite remember it and messed up an internet search going too fast.

Steve

[hiriskpaul]

Looking at the last 50 years, the MSCI World index gross annualised return, dividends reinvested, was 10.9%. Some of that was due to the depreciation of the pound against other currencies, which may or may not repeat itself over the next 50 years. In dollar terms the annualised return was 9.6%. So the linked article suggesting 10% is probably not too unrealistic as an expectation for future stock market returns.

hiriskpaul,
do you have this in inflation adjusted terms?
Over the last 50 years we have had wildly different inflation environments, which skew the figures to the point of making them meaningless.
tuk020

very good point, average uk inflation over 50 years was 5.74%. Giving a real return around 4% and that would seem to me a reasonable expectation going forward.

https://www.officialdata.org/uk/inflation/1969?amount=1

It would be nice to think that the long term return on stocks was a spread over inflation. Unfortunately it does not always work out that way. In the relatively benign inflation environment we have now, this may well be true as companies can pass on moderate inflation, but when inflation lets rip that assumption breaks down. For example, from the end of 1969 to the end of 1979, the MSCI World index returned a respectable 7.7% (gross annualised, in pounds), but inflation averaged 12.5%.

[colin]

Yes though I remember reading somewhere that dividends kept pace with inflation but investors were too scared by the high inflation to buy stocks so share prices fell below the value that dividend payouts would imply.

[mc2fool]

For example, from the end of 1969 to the end of 1979, the MSCI World index returned a respectable 7.7% (gross annualised, in pounds), but inflation averaged 12.5%.

Was that World inflation, and measured as the increase in prices in pounds? Or just UK inflation?

I don't actually doubt the gist of your point, but I do think that if you're going to look at returns over (or less than) inflation you need to do an apples-for-apples comparison, and without currency effects. So, what did the All Shares return over that period?

[hiriskpaul]

For example, from the end of 1969 to the end of 1979, the MSCI World index returned a respectable 7.7% (gross annualised, in pounds), but inflation averaged 12.5%.

Was that World inflation, and measured as the increase in prices in pounds? Or just UK inflation?

I don't actually doubt the gist of your point, but I do think that if you're going to look at returns over (or less than) inflation you need to do an apples-for-apples comparison, and without currency effects. So, what did the All Shares return over that period?

That was UK inflation, in pounds, World index in pounds. FTSE allshare did better, 10.5% annualised, dividends reinvested.

It is difficult to take out the currency effects as the UK stock market market gets well over 50% of earnings in foreign currencies and it is hard to estimate to what extent companies hedged currency movements.

Edit: Corrected FTSE figure. First value I came up with much maligned the FTSE!

[tjh290633]

When I get back home I will repost my record of dividends per income unit, compared with the RPI.

Notwithstanding the traumas of 2008-9, the dividends since 1987 have been comfortably ahead of the RPI by a considerable margin.

TJH

[GeoffF100]

Past returns tell us little about the future. Current asset valuations are high by historical standards. Climate change will have an increasing impact. Other catastrophes cannot be ruled out. When everyone says that equity investing is a one way street with only blips on the way, a crash soon follows. Nonetheless, we have to put our money somewhere, and no one knows the future.

Nonetheless, for what little it is worth, I have averaged about 50% cash and bonds over the last twenty years since I retired. My investments have nonetheless grown at an average rate of about 9% p.a. over that period. During the early years, I was taking money out before my pensions started payment. During the later years, I was not spending all my pension income, so there has been a net cash input. All this tells us is that my investments have been successful, and that I do not spend very much.

[hiriskpaul]

When I get back home I will repost my record of dividends per income unit, compared with the RPI.

Notwithstanding the traumas of 2008-9, the dividends since 1987 have been comfortably ahead of the RPI by a considerable margin.

TJH

Inflation plummeted in the early 80s and stock markets soared way above inflation, even with brief blips in 1990 and 1994. The boom ended with the bursting of the dot com boom. Dividends would have grown faster than inflation during that period and probably even after the dot-com bust as many of the companies caught up in the bubble paid little or no dividends.

[mc2fool]

It is difficult to take out the currency effects as the UK stock market market gets well over 50% of earnings in foreign currencies and it is hard to estimate to what extent companies hedged currency movements.

That's all true but in a way it's by-the-by, as the same is true of inflation -- some of the basket of goods used will be from abroad and/or contain foreign "components" (inc the widest sense, poss. inc. labour).

And anyway, as you said, companies can pass on moderate inflation (and, actually, I believe overall they can do so with higher inflation too), and so it really does make sense when comparing returns with inflation that both are within the same country. After all, the MSCI World is (now, and probably always has been at least) 50% USA, and there's no reason for US companies to pass on UK inflation when they're selling outside the UK....