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% benchmark for returns
Maureen Jackson
Posted: 27 January 2013 07:02:07(UTC)

Joined: 13/03/2012(UTC)
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I'm investing for my grandchildren so I have plenty of time. However, could I please have your opinions on what % increase do you use in order to judge "adequate" returns. I'm totally invested in stocks and have been using 5.7% - inflation plus 3%. Is this reasonable?
Many thanks in advance for your wise thoughts
Posted: 27 January 2013 18:08:41(UTC)

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Hello Maureen,
Not sure if this helps, but I don't have a figure in mind, I just try to make as much as possible.
I monitor what I hold and if it appears there is a better option I switch.
By better option I mean a similar fund or trust with some or all of the following - better performance (over various periods), better yield, lower TER or lower risk.
I try not to switch too hastily though, I can forgive a manager a period of underperformance, especially if he/she is highly rated/regarded.
Whilst doing this I try to maintain a sensibly balanced portfolio.
I don't think my method is very sophisticated compared to what other people appear to do, but it seems to work for me.
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Maureen Jackson on 28/01/2013(UTC)
Income Investor
Posted: 28 January 2013 09:40:08(UTC)

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That is a reasonable objective - to keep ahead of headline inflation. But you should have an investment logic or 'style' (otherwise your choices will be fairly random). In that case, the benchmarks may be more specific, and you should be able to judge how well you have done against investors with a similar approach.

In my case, I have a number of benchmarks I look at:

But my 2012 result exceeded all of them - indicating perhaps a lucky combination of choices:

You can also check out how you are doing compared to other investors:
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Maureen Jackson on 29/01/2013(UTC)
Rob Walker
Posted: 03 February 2013 09:08:12(UTC)

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I don't think a percentage is relevant unless you intend to withdraw a certain proportion as 'banking the profits'. You should know why you bought an investment and have some idea how much you'd want to gain from it. So that should be the sell point for that particular item. For instance, I bought Xtrata last year at 900p expecting them to reach about 1200p 'fairly quickly' so I'll be selling soon. However I bought Lamprell at 120p expecting to hold them for at least a year and then selling if / when the price doubles. During the crash, however I bought several shares that have since doubled in value and on most of these I've sold half to recover my original investment and now wait for any interesting developments (eg takeovers, or disasters) to prompt me into selling the rest. (Oh, and there are a few Turkeys - like Black's Leisure - that have never flown).
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Maureen Jackson on 04/02/2013(UTC)
Posted: 03 February 2013 12:53:19(UTC)

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Maureen -

Rob rightly states: "I don't think a percentage is relevant unless you intend to withdraw a certain proportion as 'banking the profits."

That comment certainly reflects my position as our primary source of income is my SIPP which is in Income Drawdown mode - and has been for the past 11 years.

My drawdown rate is 7%pa. So I target 12%pa:

# 7% for drawdown
# 3% for inflation
# 2% for growth

So, I target 12% compound growth; and have modestly exceeded that level over the past 11 years by essentially sticking to assets esp. Zero Dividend Prefs, Real Estate, Private Equity and a relatively new market sub-sector of companies in voluntary liquidation - see the SL thread on ADVFN.

I now no longer buy what I refer to as Conventional Trading Companies – CTCs. CTCs are too often subject to the extraneous excesses over which shareholders have no control – political risks, margin erosion, competitor action, technological change, broker downgrades - EVENTS (legal, natural, political, social, financial).

Perhaps the biggest risk to the CTC route is stock-picking. Just what makes you or me imagine that we can sufficiently research any company so that we can be sure we will profit from a rising share price. I trained in “The City” 40yrs ago, so I perhaps have a better chance than many; however, I know that by riding the momentum of a bull market I may profit; but by-and-large those profits are a chimera to be swept away as Markets switch lower.

Instead, perhaps consider the alternative approach of buying assets at a discount.

Don’t necessarily BUY these, but note them, research them, monitor them; both of them in volluntary liquidation:

# Acencia Debt Strategies "ACD" - a liquidating hedge fund - offers a Gross Redemption Yield of 12.8%pa to a 31/03/15 liquidation date. Sp = 91p versus current NAV of 103.4p and rising

# AXA Property Trust "APT" - a liquidating property company with 2/3rds of their portfolio in the out-performing German Real Estate market - buoyed by both institutional and hot private investor monies from the rest of the Eurozone. Sp of 36.5p versus a latest NAV of 58.55p Assuming a healthy discount down to 50p & liquidation by 30/06/15 provides a Gross Redemption Yield of 13.9%pa.

These aren't great returns; but they are significant...and have been deliberately understated.

Income Investor says “ should have an investment logic or 'style' (otherwise your choices will be fairly random). In that case, the benchmarks may be more specific, and you should be able to judge how well you have done against investors with a similar approach.”

I agree with him; and my recommendation is BUY assets at a discount. Liquidating companies provide that – there aren’t many of them, but they are worth seeking out – that SL thread on ADVFN is currently the only place to find a few at least…
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lynne shaffer on 03/02/2013(UTC), Stephen Garsed on 04/02/2013(UTC), Maureen Jackson on 07/02/2013(UTC)
lynne shaffer
Posted: 03 February 2013 13:16:36(UTC)

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Can yougive me some idea please how to find SL thread on ADVFN?
Posted: 03 February 2013 14:50:02(UTC)

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Lynne - you may need to sign up - but its FREE if you don't wish to subscribe for all the other benefits, especially unlimited streaning prices...
Posted: 03 February 2013 15:27:29(UTC)

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Maureen, some good ideas given above.

If the company is a good one, then it is worth holding onto. I am not recommending it, but for some while I wanted to buy in to BG, but didn't have the where withall. When I did, the price was too high, but when they dropped, I dove in, only to see them drop another pound. They have since recovered, but the return is low, 1.41%. I am looking to the future (Mind you I should be more concerned with income, but never mind) and gas and moving it around is going to be the fuel in demand. My view.

Tobacco is going great guns at the moment, but with all this anti smoking, it will, almost inevitably fall, but the income is great, at the moment. I have two holdings, inherited, one from my father, and the other on the break up of a conglomerate.

Do not hold in CREST, as there will be account charges, if not now (and some do) then later. Get certificates. A higher charge initially, but then no charges. I watch the papers for tips and consider them.

I tend to wait for the dips in the market. A few years ago I had some money and then bought in, when I should have waited, I knew there was trouble on the horizon, but the market was rising. I did well on some shares, but had I waited for 6-9 months, I could have more than doubled the stocks purchased. I am still waiting for some of the stocks to hit break even, confident they will and then go on and do better, e. g. Lloyds.

Investing maxim, from the Intelligent Investor, be fearful when others are greedy (i.e. strongly rising market) and be greedy when others are fearful (falling market). The problem is timing.

Rather than doing little buys, accumulate and buy a bigger holding, you save on charges, and if a decent company and many do this, take shares in lieu of dividend. NEVER take the offer from a registrar to buy with the dividend the stock, most of the money will go to the registrar and charges, little to the stock. They are cowboys, guns for hire, muggers, expensive and highway robbers.
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Maureen Jackson on 04/02/2013(UTC)
Keith Hilton
Posted: 03 February 2013 15:34:30(UTC)

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Hi Maureen,

Without taking excessive risks, I would think that 2%-4% + RPI is a reasonable expectation. Like others have said, I'd try to pick an investment style that suits you e.g. income, value, growth, momentum etc.

It will also depend upon whether you are using funds or picking your own stocks, since charges of 0.5% - 2.5% will eat into those returns, if you choose funds. So will over-trading too! Look to use ETF's or Investment Trusts for lower charges than open-ended funds (OEICS). Over the long term these charges can make a significant difference to the eventual value of your investments.

Geographical and sector selections will also determine what sort of gains (or losses) you can expect. Look to invest a significant portion in global markets, especially those regions with younger populations and low government debts. This probably means funds, of some sort, unless you're a more sophisticated investor than me.
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Guest on 03/02/2013(UTC), Maureen Jackson on 04/02/2013(UTC)
Posted: 04 February 2013 11:06:13(UTC)

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I like your rationale for SIPP growth target.... i.e. 7% withdrawal, 2% growth and 3% inflation...= 12% p.a. target...
What about costs of SIPP provider ?
You seem to have found some esoteric investments....! I'm not sure that my SIPP provider would be as liberal....e.g they turned down my request to allow an investment in a C2B loan scheme... (Thin Cats) which should yield 8% - 12% p.a.
Who is your SIPP provider ?
Posted: 04 February 2013 11:15:37(UTC)

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DGL - I very happily use the same SIPP provider I enlisted with at the outset 11 years ago:

They were the original online SIPP provider - the very first and in my opinion still the very best - a view increasingly shared by the financial media - inc The Times & The IC.

There are NO charges other than the low dealing rates. I pay just £4.95/deal as I trade more than 10 times/month. Less active investors pay £9.95/deal.

Click on the link then click into SIPP...

NB: It was Sippdeal who led the campaign which successfully made the Government return to the 120% GAD rate in the Autumn Statement.
Hugo First
Posted: 04 February 2013 12:12:14(UTC)

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Dear Maureen

Over the very long term, a target rate of return of 5.7% on stocks is not unrealistic. By some measures it is conservative. Some economists advise that, over the long term, the real return on stocks will be the dividend yield plus the rate of growth in profits. The assumption is that dividends will increase over time in line with profits, and that profits, again over time, will tend to rise at the same rate as economic growth. So, if you have a portfolio of stocks yielding (say) 3% from an economy increasing at (say) 2% real growth in GDP per year, then a REAL rate of return of 5% (3% + 2%) over the long-term is not an inappropriate target. And historically, shares in the USA and UK have produced these sorts of returns.

HOWEVER. Over specific periods, which can be quite long, the returns on shares can significantly underperform the long-term average. And in the short-term, a portfolio heavily dependent on any one asset class can be very volatile indeed. I understand that you can afford to take the longer-term view, but I would personally be nervous about being 100% invested in stocks. You also don't mention how your investments are spread geographically and by size of company. I personally spread my investments across a mix of corporate bonds, property, cash and stocks. And I spread the stocks across different geographic markets (UK, USA, Europe and the developing world) and different sizes of company. Small companies for example tend to grow faster than larger ones, but they are also more volatile and individual companies' shares can be illiquid. I don't buy individual company shares or actively traded funds. I use low cost tracker funds.

You don't mention whether you are investing in individual companies, or in unit or investment trusts, or in exchange traded funds. How you invest will affect your costs - average annual costs on "active" unit trusts can exceed 1.5% for example. Not insignificant if you are only targeting 5% returns. Costs on passive "tracker funds" are typically less than 0.5% per annum.

I hope this helps rather than confuses. I can also strongly recommend that you read "A random walk down Wall Street" by Burton Malkiel, and have a look at some of what is on the web about and by John Bogle, who founded the Vanguard Group. Keep your wits about you - there's a lot of bad and expensive advice and financial offerings out there.

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Maureen Jackson on 05/02/2013(UTC)
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