Dealing with overvalued markets is so difficult. One has to think it will deflate eventually, but markets can stay overvalued for a long time (look at housing). Feels like the risk is the highest it's ever been right now.
Pension fund performance - do you monitor yours, how is it doing, do you actively change it?
- Thread starter danlightbulb
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I know this is a how long piece of string question. But its accepted, isn't it, that equities will rise given a long enough time frame.
Short term volatility aside, what would you expect the long term percentage gain of a global equity index fund to be, as an annual average? Is it 10%, less, more?
I would be very happy with 10% p.a gains on average for the next 20 years, then I could slowly transition to lower risk funds when I reach 60-65 (I expect to work until 70 at least, that is when my mortgage term ends). But is 10% p.a what would be expected from that type of fund?
I suppose another way of asking what Im asking is, what do I do to target 10% p.a average returns for 20 years?
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Oh P.S - my partner showed me her DC pension fund. She has a similar fund to me where you can choose schemes. She had done so, and gone...wait for it...100% into a single property tracker fund.
Why did she do this I asked? She just thought property would always go up and didn't understand what anything else was.
Not sure will have to get her to show me later.
Not sure what those trustnet charts show - are they nominal or real?
Id be happy with 7% pa. With my contributions that gets me to a million quid pot over 25 years.
7% should be achievable, but a million quid pot sounds unlikely to me (I just find it unlikely that I would ever have this much money) If I live for 30 retirement years that will give me £33k a year which should be enough.
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Thanks it's useful to put a number on it as a guide.
Same chart with CPI and RPI. Same timeframe.
Cool so after inflation the real growth is about 30%, half of the nominal growth.
6 year nominal growth around 10% a year though, so higher than the 'realistic' 6-7% referenced above.
Edit - your spoiler is 16% pa nominal growth, way higher than the realistic 6-7% target.
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Had a another good look through my available funds today. There isn't a world tracker so I would have to go for three separate funds - a UK equities, an emerging markets, and a developed world ex-UK index.
Here's the performance of the three funds over the past 14 years.
Emerging markets isn't doing too good is it. I know diversification, past performance no clue etc, but is it even worth including this?
Here's the performance of the three funds over the past 14 years.
Emerging markets isn't doing too good is it. I know diversification, past performance no clue etc, but is it even worth including this?
Yeah so something I'm a bit uncertain about is how to set the percentage. I believe that currently, if mirroring the distribution of world equity I would go 11% emerging markets, 5% UK, and that leaves 84% in the rest of the world covered by the world ex-uk fund.
But a single world fund would automatically rebalance as the world changes right, so let's say China goes on a sudden bull run, a proper world fund would automatically mirror that, but my three fund split wouldn't.
How do I ensure that my three fund split continually mirrors world equity in the right proportions?
You don't. You set a reasonable schedule to rebalance - one a year at most. I'm not going to repeat how to figure out the weightings in this thread when the article I used to setup my investment explains it better than I ever could.
DIY Global Tracker - UKPersonalFinance Wiki
Context: This article was originally written a few years ago, when low-cost world index trackers were not widely available. The complexity of running your own DIY global tracker is now likely not worth the much smaller fee saving. You may have read threads in the subreddit, or other sources such...ukpersonal.finance
Ah great thanks, this was posted earlier wasn't it, I knew I'd seen something but I've been watching/reading so much stuff on the topic last few days, I couldn't remember what I've seen where.
I'm still uncertain about bonds. I've watched some videos and podcasts from Pensioncraft, James Shack, Meaningful Money and Damien Talks Money; and whilst these people do seem to advocate a 100% global tracker approach, they also talk a lot recently about bonds now that interest rates are higher.
So it's unclear to me whether they would now advocate some bonds in a portfolio or not.
Ive been researching bonds quite a lot given I have a decision to make about whether to keep them in my portfolio or not.
Over the past 20 or so years, bonds have acted as a hedge to equity, they were inversely correlated so that if equities went down, bonds went up and vice versa. So its been seen as a way to diversify.
But, in the time before that, bonds and the stock market were more positively correlated so they went up and down together. This makes them not really a diversification to equities.
It seems that the negative correlation of bonds and stocks has been linked to the period of low interest rates, which were an anomaly over the past 100 years. If interest rates are returning to what is considered more historically normal, it may be that bonds return to their historical trend as well. Also the bond crash in 2022 has been linked to high inflation, which is now hopefully subsiding. I saw one article that said that during periods of high inflation, the best diversification would be commodities. They are no commodity funds I can invest in in my pension scheme though.
It seems that long term (100+ year) returns in stocks has been in the order of 10% and in bonds in the order of 6%. Actually that is not too bad, as an 80/20 mix would net you about 9% on average.
https://barbarafriedbergpersonalfinance.com/historical-stock-and-bond-returns/
So whilst stocks still outperform historically, it seems that if considering diversification it would still be sensible to hold bonds. As the past is no guarantee of future performance, who knows whether stocks will continue to outperform in future or whether the gap might close up. So on this basis I don't really understand why the recommendation is for 100% worldwide equities, because this would seem to be relying on the past performance of equities.
Over the past 20 or so years, bonds have acted as a hedge to equity, they were inversely correlated so that if equities went down, bonds went up and vice versa. So its been seen as a way to diversify.
But, in the time before that, bonds and the stock market were more positively correlated so they went up and down together. This makes them not really a diversification to equities.
It seems that the negative correlation of bonds and stocks has been linked to the period of low interest rates, which were an anomaly over the past 100 years. If interest rates are returning to what is considered more historically normal, it may be that bonds return to their historical trend as well. Also the bond crash in 2022 has been linked to high inflation, which is now hopefully subsiding. I saw one article that said that during periods of high inflation, the best diversification would be commodities. They are no commodity funds I can invest in in my pension scheme though.
It seems that long term (100+ year) returns in stocks has been in the order of 10% and in bonds in the order of 6%. Actually that is not too bad, as an 80/20 mix would net you about 9% on average.
https://barbarafriedbergpersonalfinance.com/historical-stock-and-bond-returns/
So whilst stocks still outperform historically, it seems that if considering diversification it would still be sensible to hold bonds. As the past is no guarantee of future performance, who knows whether stocks will continue to outperform in future or whether the gap might close up. So on this basis I don't really understand why the recommendation is for 100% worldwide equities, because this would seem to be relying on the past performance of equities.
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But what is 100% equities based on if not past performance?
And 2022 demonstrated that bonds is also high risk as well, with a massive bond crash that had never happened before in 100+ years of data history.
There's a piece of logic missing that Im not seeing.
Hmm, so past performance is no guarantee of future performance, except over long time frames when its then fine to assume it.
They never say the 2nd part do they...
Don't you see the paradox though? If the past is no guarantee of future performance, then how do you know bonds won't start to outperform in the next 50 years rather than equity?
Your turnips analogy is not far off the mark. If one was truly trying to diversify fully, you would probably have 25% in equities, bonds, commodities and say cash or gold, or nowadays bitcoin...because there is no way to ever know which asset type will do well next.
That all makes sense.
But it's still not guaranteed is it, even over say 50 years.
The point I'm making is only that when people say past performance is no guarantee of future performance, and then go for 100% equities, really they are themselves making an assumption of future performance based on what has happened in the last 100 years.
I don't think that would be a strict definition of diversification that's all. A 'pure' diversification would surely be completely independent of any asset class bias whatsoever.
But it's still not guaranteed is it, even over say 50 years.
The point I'm making is only that when people say past performance is no guarantee of future performance, and then go for 100% equities, really they are themselves making an assumption of future performance based on what has happened in the last 100 years.
I don't think that would be a strict definition of diversification that's all. A 'pure' diversification would surely be completely independent of any asset class bias whatsoever.
Yeah he probably meant final salary schemes. I've seen this happen in my company final salary scheme when they had one. Of course not everyone got that treatment, only those who were in the clic. It's irrelevant now as the final salary scheme went years ago. The boomers made their wedge then dropped it for everyone else.
"Damien talks money" you tube guy put a solution forward in one of his videos - get rid of state pension for anyone born today and instead give them £5k in a stocks pension fund which will grow for 70 years before they need it. Seems a good idea to me.
Your payslip should make it easy to see if you're paying from gross or net salary.
If your HR are saying 'net pay' then that sounds like youre paying pension post tax so that would explain you seeing 20% on Aviva.
Suggest scrutinising your payslip.
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On my payslip the pension deduction is shown as a negative on the earnings side of the slip, not on the deductions side, where only tax and NI appear.
You'll have to properly calculate your tax I think to check what you should be seeing.
I have my own tax calculator spreadsheet. If you want to DM me a few figures I can input it to see what it shows.
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I believe my total pension pot is only... 70k..I'm 38... RiP retirement!
I think I've found them all.
Oh. Just an FYI.
I forgot about a big one.. A 44k one. And one of the details was "beneficiaries" and it was listed as my ex!
Obviously I set it up at the time, didn't think much of it.. Never changed it.
Make sure you check this!
You're ok.
I was 40 when I reconfigured my pension funds in 2020 and I had around £80k then. Upped my contributions substantially since then and being in better funds I now have £140k and still probably 20 - 25 years left contributing.
The bigger your pot gets the more it grows. Most of the growth is back ended which is why market performance just before retirement matters so much.
Just got to pay in as much as you can (I'm 12% at the moment with my employer putting 6%), and hope the funds perform well. With a good wind it's possible for me to reach a million. Probably won't happen but it could.
Did you not have a life?
I'm confused by this.
Also how do you buy a property inside your pension fund? Why doesn't everyone do that rather than have a mortgage?