ISA prediction guesstimate

[drainbrain]

If I put 1250 a month into an s&s ISA over the next 10 years what would be a reasonable outcome to expect.

Would £200k be unrealistic?

[sidicks]

drainbrain said:

If I put 1250 a month into an s&s ISA over the next 10 years what would be a reasonable outcome to expect.

Would £200k be unrealistic?

That requires a 5.7% investment return.

[drainbrain]

Is that foolishly unrealistic?

[sidicks]

drainbrain said:

Is that foolishly unrealistic?

Very difficult to say.

As a long-term equity return it's not entirely realistic, but what is unrealistic is to expect a consistent return from year to year.

In practice, if you invest in equities you will likely experience volatile returns, with +20 - 30% returns in some years and -10% - -15% in other years etc and everywhere in between, meaning that the actual return achieved will be very dependent on when in the 10-year period the different returns occur.

[Ozzie Osmond]

The way I think of it is,

• You're going to pay in £150,000 through the 10 years.
• The first monthly payment is invested for a full 10 years and the last monthly payment is effectively not invested at all.
• When you consider all of your monthly payments the average time they're invested is 5 years
• How could £150k be made to grow to £200k in five years?
• To see what return is needed to make £50k on £150 in five years you can use an online compound return calculator, like this one http://www.thecalculatorsite.com/finance/calculato... Stick in your £150k invested and the average 5 year term, then use trial and error inserting some simple % returns.
• Very quickly you can find that 6% would give a bit more than £200k
• Finesse the percentage number a bit and 5.8% gives £200,324. Bingo!
• All of which confirms Sidicks figure of 5.7%

Is that too much to expect from the stock market? History says no, it's probably fine. Whether the future will actually turn out like that you will only know at the end!

Am I investing in the stock market for the next 10 years? Yes. But if the market was looking poor at the end of the 10 years I wouldn't sell at that point, I'd wait for recovery.

[drainbrain]

Hmmm. Much to think about. I'm not naturally inclined to investing in financial products and I think I may not be equipped to make the decisions this type of investing requires.

An ad keeps popping up on this website for a firm called 'London Capital and Finance' who seem to be offering returns of 8%pa for 3 year investments. Is this too good to be true given the fairly sober comments from Sid & Oz above?

Edited by drainbrain on Wednesday 1st June 23:27

[sidicks]

drainbrain said:

Hmmm. Much to think about. I'm not naturally inclined to investing in financial products and I think I may not be equipped to make the decisions this type of investing requires.

An ad keeps popping up on this website for a firm called 'London Capital and Finance' who seem to be offering returns of 8%pa for 3 year investments. Is this too good to be true given the fairly sober comments from Sid & Oz above?

Edited by drainbrain on Wednesday 1st June 23:27

I'm certainly not going to be providing investment advice on here (and I'm not familiar with the investment you refer to), however, a risk free investment would deliver 2-3% over a 3-year period, suggesting that to get an 8% return requires significant risk to capital...

[audidoody]

Do you intend to pick top dividend performers? Do you intend to reinvest the dividends? Or are you looking for share price growth entirely? Will you need to sell shares to meet a cash emergency ?Etc etc

[Ozzie Osmond]

drainbrain said:

'London Capital and Finance' who seem to be offering returns of 8%pa for 3 year investments. Is this too good to be true given the fairly sober comments from Sid & Oz above?

Yup, too good to be true. Underneath the headline rates on their website are the important words, "your capital is at risk and payments are not guaranteed if borrowers default."

Put simply it looks a shocking investment to me. They're capping your upside at 8% over three years but leaving you with the downside if anything goes wrong. I didn't read any further because I'd already be looking elsewhere.

"Fairly sober" is probably a good attitude to have in the world of "investing". It's very different IMO from "gambling" or "speculating". What matters is to carry enough risk to get a decent chance of decent returns without running so much risk that there's a real chance of losing money.

I look at it like this. Yes, the stock market has risk in it. But ask yourself, if Barclays, BP, BT, Aviva, Astrazeneca and Tesco have gone bust which is likely your biggest problem,
a) the reduced value of your investments?
b) finding employment?
c) finding something to eat for lunch? or
d) the blokes with knives and hammers coming up the drive to nick your stuff?

For this reason I personally do not consider mainstream equities (stocks & shares funds) in the major global economies (UK, Europe, USA) to be particularly high risk. No guarantees though.

Remember that even when you buy a "UK" fund you get a lot of real-world global investment - because the big companies all operate globally. Hence, for instance, the fund I mentioned above, although it's one of many similar funds some of which will do better and some of which will do worse. (I should say I'm not invested in that one myself but it looks to be what I would call "mainsteam".) Specific recommendations are impossible without paying an IFA to go through all the hoops but the sort of broad guidance you'll get on this forum might enable you to make your own decisions as to overall direction. Then if you look at the internet Fidelity have their "Select List" and Hargreaves Lansdown have their "150" you'll see which funds they think might be interesting in each sector. There are also magazines like "Money Observer" available from W H Smith which can give some pointers.

Good luck!

[Jockman]

Yeah, FCA regulated but not FSCS.

They get returns from lending to SMEs @ 12-20% interest rates.

Clearly a high risk of default.

[Ozzie Osmond]

Yup, that info' if correct confirms my "run away" reaction,

• They lend at 12-20%
• You get 8% max'
• You carry the downside risk if all goes pear-shaped.
• They pocket 4-12% risk free [nice work if you can get it...]

[sidicks]

Ozzie Osmond said:

I look at it like this. Yes, the stock market has risk in it. But ask yourself, if Barclays, BP, BT, Aviva, Astrazeneca and Tesco have gone bust which is likely your biggest problem,
a) the reduced value of your investment

Let's not forget that:
- Between 2008 and 2016 Tesco share lost 70% of their value
- In 2010 BP shares lost over 50% of their value
- Between 2007 and 2009 Barclays Bank shares lost almost 90% of their value

Etc!

[walm]

sidicks said:

Ozzie Osmond said:

I look at it like this. Yes, the stock market has risk in it. But ask yourself, if Barclays, BP, BT, Aviva, Astrazeneca and Tesco have gone bust which is likely your biggest problem,
a) the reduced value of your investment

Let's not forget that:
- Between 2008 and 2016 Tesco share lost 70% of their value
- In 2010 BP shares lost over 50% of their value
- Between 2007 and 2009 Barclays Bank shares lost almost 90% of their value

Etc!

Exactly.
Individual stocks are massively high risk.
Even AZN's 1-year peak to trough is >17%.

[drainbrain]

So given the precarious and uncertain nature of s&s investment, what would the team suggest as a repayment vehicle for a 10 year £200k IO loan?

I should add that IO was at the lender's insistence not mine. Goodness knows why. I'd have thought from a risk reducing perspective and from the likelihood of rates rising rather than falling it would be handy to have money back to relend to others.

Anyway, what do I know……..

[Jockman]

Set up a Standing Order to pay off the capital too?

[drainbrain]

Well that imaginative solution is one potential possibility. 10% pa can be repaid without penalty.

Just thought the ISA idea might be an alternative to doing what comes more naturally i.e. thinking up some venture or other to produce the repayment cash plus some on top. Supposed to be 'retired' after all.

[Ozzie Osmond]

In private life I'm not one for "gearing" even though it can be good in a business.

In general I would pay down debt (even mortgage debt) before getting into investment. Why borrow money that you've already got?

The exception I would make is if you have a cheap mortgage and can effectively invest the borrowed money (i.e. any surplus cash) into pension, pocketing 40% tax relief along the way. The tax relief gives you a much better risk profile but doesn't make the risk disappear completely. Also, if interest rates increase and it becomes more attractive to pay down mortgage, pension money isn't accessible before about age 55.

[CaptainSensib1e]

Ozzie Osmond said:

In general I would pay down debt (even mortgage debt) before getting into investment. Why borrow money that you've already got?

Because you can borrow for less than 2%, but invest in an equity fund with a 4% yield (and that's excluding any potential capital growth). Paying down cheap debt is madness in my view with interest rates so low.

[Ozzie Osmond]

4% yield gross before 40% tax leaves only 2.4% in your pocket with which to pay the mortgage interest. That's gonna be a tight margin at best. And the capital's at risk.

Yes, I recognise at the end of the day it all comes down to how people feel about these things. IMO a "home" is not just an "investment" and it's the one place I like to keep financial risk as low as possible.

[CaptainSensib1e]

But you don't pay 40% tax on dividend income, and the first £5,000 of dividend income is tax free. So for the majority of people 4% means 4%.