Wanted: 10% average return over next 18 years

[Ultramagnetic]

Hi trade2winners,

I plan to retire in 18 years, and it is becoming clear I have not saved as much as I should have at this stage and am in danger of not meeting my target.

I have £32,000 in a SIPP, as of this year will be adding £6,000 a year and fingers crossed will be able to keep this up for the next 18 years.

I have a target pot size of 500k, and to achieve this will need an average 10% return per annum. I know the stock market historically return 9% per annum, however I am not convinced this record will be reliable over the next few decades so am taking the risky decision to mange my money more actively (although not very actively).

Do you believe this is achievable? If so what sort of approaches should I be looking at to achieve this?

 

[Uranus]

Put it in a S&P index ETF. I recommend VOO. Cheaper management fees than SPY and it's Vanguard, enough said.

 

[Ultramagnetic]

Put it in a S&P index ETF. I recommend VOO. Cheaper management fees than SPY and it's Vanguard, enough said.

Thanks for the VOO recommendation. Of course I had considered the cheap ETF index tracker option. It may be the way to go but for now I have doubts about the market continuing to yield the kind of returns we have become accustomed to seeing.

 

[Ultramagnetic]

Put it in a S&P index ETF. I recommend VOO. Cheaper management fees than SPY and it's Vanguard, enough said.

Ah, I see it is a USD fund, which would expose me to exchange rate risk so not suitable anyway.

 

[alexaherself]

Do you believe this is achievable?

Yes.

If so what sort of approaches should I be looking at to achieve this?

I'd be researching and learning all I could about buy-to-let property.

It strikes me that your current £32k is more than enough for a 25% deposit (and that's what you'd probably need) on a 4-bedroomed terraced house in a Northern university city (Leeds? Newcastle? Two in Hull?!) where lettings are comparatively easy and reliable, from the landlord's perspective. A lot depends on how passively/actively you'd want to be involved with it, yourself. That's just one initial suggestion; others may be better.

 

[Ultramagnetic]

Yes.



I'd be researching and learning all I could about buy-to-let property.

It strikes me that your current £32k is more than enough for a 25% deposit (and that's what you'd probably need) on a 4-bedroomed terraced house in a Northern university city (Leeds? Newcastle? Two in Hull?!) where lettings are comparatively easy and reliable, from the landlord's perspective. A lot depends on how passively/actively you'd want to be involved with it, yourself. That's just one initial suggestion; others may be better.

I had thought about this. I have reservations for reasons I won't go into but worth keeping in mind.

 

[Ultramagnetic]

Yes.



I'd be researching and learning all I could about buy-to-let property.

It strikes me that your current £32k is more than enough for a 25% deposit (and that's what you'd probably need) on a 4-bedroomed terraced house in a Northern I suspect we will soon have a government who will (rightly or wrongly) not have the best interests of the rentier class in mind, and will be more concerned about the needs of the millions of 20 somethings with no hope of ever owning a home and struggling to rent a room in a shared house. university city (Leeds? Newcastle? Two in Hull?!) where lettings are comparatively easy and reliable, from the landlord's perspective. A lot depends on how passively/actively you'd want to be involved with it, yourself. That's just one initial suggestion; others may be better.

Well as Forexhomosapien also thinks this is a good idea I will explain.

I suspect we will soon have a government who will (rightly or wrongly) not have the best interests of the rentier class in mind, and will be more concerned about the needs of the millions of 20 somethings with no hope of ever owning a home and struggling to rent a room in a shared house.

For that reason, and the current bubble-like nature house prices in the UK, I am sceptical on real estate as an investment. and would prefer to be involved in more liquid assets.

 

[mb325]

Ultramagnetic forgive me if I'm wrong but I'm assuming you have limited trading/investing experience?

If so, what makes you think you can get anywhere close to 10% annually when the (supposedly) best hedge fund/PMs in the world are struggling to get near that themselves? I don't mean to sound harsh, just being realistic.

See this page on their returns vs the S&P http://www.ritholtz.com/blog/2015/10/sp-500-vs-hedge-fund-returns-since-2011 .

The first reply was on the right track, looking at low-cost ETFs, the stock market may return 9% annually but that is not net of fees etc. and so in actual fact is several % points below that, so reducing drag on your portfolio is massively helpful.

However, with 18 years left to retirement you should maybe not be putting it all into an equity tracker as it may not be enough time to take advantage of the extremly long-term up-trend in stocks. Some mix including bonds would therefore be prudent, which although reducing the probable 'volatility' of your portfolio and offering more capital protection, will in all likelihood also reduce your returns.

In all honesty, your best bet is to save save save, and the sooner the better.

 

[Ultramagnetic]

Ultramagnetic forgive me if I'm wrong but I'm assuming you have limited trading/investing experience?

If so, what makes you think you can get anywhere close to 10% annually when the (supposedly) best hedge fund/PMs in the world are struggling to get near that themselves? I don't mean to sound harsh, just being realistic.

See this page on their returns vs the S&P http://www.ritholtz.com/blog/2015/10/sp-500-vs-hedge-fund-returns-since-2011 .

The first reply was on the right track, looking at low-cost ETFs, the stock market may return 9% annually but that is not net of fees etc. and so in actual fact is several % points below that, so reducing drag on your portfolio is massively helpful.

However, with 18 years left to retirement you should maybe not be putting it all into an equity tracker as it may not be enough time to take advantage of the extremly long-term up-trend in stocks. Some mix including bonds would therefore be prudent, which although reducing the probable 'volatility' of your portfolio and offering more capital protection, will in all likelihood also reduce your returns.

In all honesty, your best bet is to save save save, and the sooner the better.

Thanks for the reply.

You assume correctly, I have limited knowledge of investing/trading.

Yes my chances of beating the best hedge managers are slim. I understand most of them do not beat the average S&P return themselves.

Of course I am aware that the traditional way of saving for retirement is a mix of low cost index tracker and fixed income, increasing the proportion of fixed income as you near retirement. Yes I realise that the 9% return on the stock market does not take into account fees.

I will probably have no option than to do as you suggest, and I am certain this will mean I will not have the amount of money I need when I retire.

For the moment, I am looking for an alternatives, I realise they aren't many. Property could be one, although I am not keen on this for the reasons stated above.

 

[mb325]

Thanks for the reply.

You assume correctly, I have limited knowledge of investing/trading.

Yes my chances of beating the best hedge managers are slim. I understand most of them do not beat the average S&P return themselves.

Of course I am aware that the traditional way of saving for retirement is a mix of low cost index tracker and fixed income, increasing the proportion of fixed income as you near retirement. Yes I realise that the 9% return on the stock market does not take into account fees (sorry if that comes across bitchy, I may not know a lot about trading/investing but I don't live in a cave).

I will probably have no option than to do as you suggest, and I am certain this will mean I will not have the amount of money I need when I retire.

For the moment, I am looking for an alternatives, I realise they aren't many. Property could be one, although I am not keen on this for the reasons stated above.

No worries, it was not my intention to talk down to you or anything so apologies if it came across that way, but it's sometimes difficult to know where to pitch things with people on a forum when you have limited info!

I'd like to stress that I'm not saying it's impossible for you to do this, just highly highly unlikely, especially given you have the added pressure that it's money that you definitely need for retirement.

I hesitate to say this but I would forget about trying to make your money via actively investing, if you have the time and are dedicated trading (would define this as long/short any product on a shorter horizon as opposed to long equities as in investing) is a much more viable option for you. I'll get shouted down for this but its more than possible to make 10% a quarter let alone a year like this, the problem is the stats are not good and 90%+ traders do not make money.

I'm not saying put your SIPP into an IG account and go crazy, keep saving as much as possible and doing what you're doing, but you can demo trade for free with many brokers and if you get to be consistently profitable then fund your account with 1k and see if you can achieve the same whilst keeping your emotions in check (a much bigger hurdle). I see no downside to having a crack, some people just have the knack for it.

If this interests you, my best piece of advice would be to not pay for ANYTHING, all the resources you need are on the internet.

I'm sure you've considered so I'm assuming it's not an option but you could always retire somewhere cheap?

 

[Ultramagnetic]

No worries, it was not my intention to talk down to you or anything so apologies if it came across that way, but it's sometimes difficult to know where to pitch things with people on a forum when you have limited info!

I'd like to stress that I'm not saying it's impossible for you to do this, just highly highly unlikely, especially given you have the added pressure that it's money that you definitely need for retirement.

I hesitate to say this but I would forget about trying to make your money via actively investing, if you have the time and are dedicated trading (would define this as long/short any product on a shorter horizon as opposed to long equities as in investing) is a much more viable option for you. I'll get shouted down for this but its more than possible to make 10% a quarter let alone a year like this, the problem is the stats are not good and 90%+ traders do not make money.

I'm not saying put your SIPP into an IG account and go crazy, keep saving as much as possible and doing what you're doing, but you can demo trade for free with many brokers and if you get to be consistently profitable then fund your account with 1k and see if you can achieve the same whilst keeping your emotions in check (a much bigger hurdle). I see no downside to having a crack, some people just have the knack for it.

If this interests you, my best piece of advice would be to not pay for ANYTHING, all the resources you need are on the internet.

I'm sure you've considered so I'm assuming it's not an option but you could always retire somewhere cheap?

No, that does not interest me =), but thanks for the info. I appreciate where you are coming from.

I currently have my money in cash. Originally I was thinking "you can't time the market" and just put it into the Vangaurd Lifestrategy 80, but couldn't bring myself to do it with the market making new highs (as it was at the time) which turned out to be wise and there was duly a correction (when I say wise I mean lucky of course).

The problem was that I then failed to enter at what would have been a great buying opportunity because I though the market was going to go lower, even crash spectacularly (you might have noticed I am an naturally pessimistic person).

Is there a emotionally detached way to avoid buying at new highs? But then of course if there was such a thing all the fund managers would already be doing it.

 

[Ultramagnetic]

I'm sure you've considered so I'm assuming it's not an option but you could always retire somewhere cheap?

Yes I have though about this, it may be an option.

 

[Ultramagnetic]

I was also thinking along the lines of commodities/mining companies. I need to take some risk to meet my needs, that goes without saying. Would it be crazy to buy a commodities or mining ETF on the basis I there will be another commodities boom in the next 18 years? $200 oil maybe? The worlds population is not going to shrink anytime soon, they need widgets.

Is that crazy?

 

[arigoldman]

Yes. But that doesn't mean it's not gonna happen.

 

[Ultramagnetic]

Yes. But that doesn't mean it's not gonna happen.

Makes me sound like a gambler.

 

[Ultramagnetic]

Apparently the average size of a market correction is +/-13% (just read somewhere). So I could have a rule -> buy if the market has declined 10%. Too simple?

I could also put aside +/-10% of my money for a speculative punt that commodities are cheap and have to recover at some point over the next 18 years.

 

[Ultramagnetic]

Apparently the average size of a market correction is +/-13% (just read somewhere). So I could have a rule -> buy if the market has declined 10%. Too simple?

I could also put aside +/-10% of my money for a speculative punt that commodities are cheap and have to recover at some point over the next 18 years.

Actually I see the problem with this approach. With pound cost averaging you will sometimes be buying at a market high, but also sometimes at a low and it averages out.

With the above I will never really be buying the lows, just a little bit off the highs.

 

[Uranus]

Try a managed futures fund. Go on NinjaTrader's brokerage website.

https://www.ninjatraderbrokerage.com/commodity_trading/managed_futures_programs

 

[Sonicscooter]

Hi, might be saying the obvious, but if you have a mortgage or credit, pay it off, burn the plastic cards and only us a debit card, compounded interest on debt is a killer soaking up your Wonga.

Regards Shane.

 

[Ultramagnetic]

Hi, might be saying the obvious, but if you have a mortgage or credit, pay it off, burn the plastic cards and only us a debit card, compounded interest on debt is a killer soaking up your Wonga.

Regards Shane.

Yes I am aware. My mortgage will be paid off in 15 years. I have no other debt. Thanks.