Estimated net return from investing outside a pension fund

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Louisval

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I'm helping someone with a putting together a personal investment/cashflow budget.

He has about €1m to invest. Part of this sum will be invested in equities.

After tax and charges, what do people feel is a reasonable long-term net rate of return to use for budgetary purposes for the portion invested in equities?
 
The annualised net return of the MSCI World Index (EUR) was 6.29% from 29 December 2000 to 28 February 2025.

Obviously that excludes any fund charges or personal taxes.

Nobody can accurately predict future returns.
 
Sarenco said:
The annualised net return of the MSCI World Index (EUR) was 6.29% from 29 December 2000 to 28 February 2025.

Obviously that excludes any fund charges or personal taxes.
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How accurate is that 6.29%?

If I do a annualised return on Zurich Life's Dynamic (Mixed Asset Fund with indicative equity range of 75% - 100%) over exact same period and include all (other ongoing & portfolio transaction fund) costs, and an AMC of 0.75%, it's coming out net of all charges at 6.73%.
 
Isn't that an actively managed fund rather than a passive fund tracking the MSCI World Index so possibly an apples and oranges comparison?
 
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If we take 6.29% for these budgetary purposes for now.

What's reasonable for charges and tax?

For example, if we say charges will be circa 0.79%p.a. and tax equates to 1/3 of the after charges return, we get (6.29 - 0.79) * 2/3 = 3.67%

Hard to know what figure to use for inflation for foreseeable future but it seems to me that one should assume, at least 2% - if not 2.5%

On that basis 1% real return seems like a reasonable figure for modelling purposes - it doesn't even seem like a particularly conservative figure as intimated by Brendan's post?

[I'll move on to the next part of my question once this part has run its course.]
 
ClubMan said:
Isn't that an actively managed fund rather than a passive fund tracking the MSCI World Index so possibly an apples and oranges comparison?
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Absolutely, but you'd think that a 100% passive equity fund would be better than a 75% - 100% (equity range) mixed asset managed fund over 25 years. No?

The International Equity (Managed) Fund on same platform has a similar return to the mixed asset fund, net of all charges. Still ahead of the passive index, with no charges included?
 
Thanks for all the responses. Much appreciated. The person I'm helping wouldn't be able to sleep at night if all his money were in equities - so there certainly will be some allocation to defensive assets.

So same question but this time about defensive assets (presumably, primarily bonds) - taking a long-term view, what would be a reasonable figure to use (for modelling/budgetary purposes) for the non-equity part of a reasonable portfolio (again after charges and tax)?
 
Historically, €32,500, adjusted annually for Irish inflation, could sustainably be withdrawn from a €1m portfolio invested 50% in global equities and 50% in global bonds hedged to euro over a 30-year period without running out of money.

Nobody can tell you definitely what will be a sustainable withdrawal rate in the future.

Taxes and investment expenses will obviously have to be paid out of that €32,500 figure.

It’s important to understand that the sequence of returns and inflation has a significant impact on the sustainability of any withdrawal rate.

An alternative approach is to withdraw a fixed % of the portfolio balance every year (4% might be reasonable) and live with the fact that your annual withdrawal will be variable.
 
@Sarenco - Thanks for taking the time to respond. The info you provided on the equity side was helpful. I'm working with a very bright neuro-divergent person who likes to approach things a certain way. That's why I'm framing the questions as I have and would value your input on the specific question posed in relation to a reasonable long-term return expectation (net of charges and taxes) for bonds for budgetary/modelling purposes.
 
The below tables I think are useful (although they are gross of tax and charges) - they are the 10-15 year expected returns in EUR from the 2025 Long Term Capital Market Assumptions report by JP Morgan Asset Management. Obviously they are only an estimate but it's generally a respected, comprehensive, and influential piece of research used widely for long-term financial planning. You can look into the workings etc in the full report which is available free online if you google it (sorry, can't post links as I'm new!)

As you can see the expected return for global equities is 5.9%, euro aggregate bonds for example is 3.3% and inflation is 2%

 
Thank you very much @Shannb1 - that's very helpful - much appreciated.

Let's take these figures for the purposes of long-term modelling.

If we say that the retail charges on both equities and bonds are 0.75% p.a. and that taxes equal 1/3 of the net gain, are we saying that, where inflation is assumed to be 2%, reasonable return assumptions to use for modelling purposes are:

Equities: (5.9% - 0.75%) * 2/3 = 3.43%
Bonds: (3.3% - 0.75%) * 2/3 = 1.67%
50/50 Equity/bond split = 2.55%

Perhaps, the gross figures are themselves subject to some tax, e.g. dividend withholding tax in some countries or other taxes? If yes, how much should be allowed for such taxes from the gross return?
 
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Yes the funds will have non recoverable DWT withheld at the fund level e.g 15% for US dividends. An Irish domiciled ETF tracking the FTSE All-World index will lose around 0.2%- 0.3%I think

Edit: There is minimal or no DWT for a find of eurozone bonds as far as I know
 
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Shannb1 said:
Yes the funds will have non recoverable DWT withheld at the fund level e.g 15% for US dividends. An Irish domiciled ETF tracking the FTSE All-World index will lose around 0.2%- 0.3%I think
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Who mentioned funds or ETFs?
The original query is simply about "equity investments" and the original poster's focus so far seems to imply direct equity investment?
Louisval said:
He has about €1m to invest. Part of this sum will be invested in equities.

After tax and charges, what do people feel is a reasonable long-term net rate of return to use for budgetary purposes for the portion invested in equities?
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If they implied direct equity investment then wouldn't the charges be negligible? Certainly not €7,500 per year which 0.75% would be.
 
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ClubMan said:
The original query is simply about "equity investments" and the original poster's focus so far seems to imply direct equity investment?
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Fair enough, they do mention 33% which implies direct investment or accessing US domiciled funds subject to CGT I suppose. With a 1m fund I’d probably recommend using funds or ETFs but each to their own. The estimate of 0.2-0.3% still stands if they go as diversified as possible (which I would recommend). If they are stock picking then you can’t estimate any of this at all, it depends what they invest in! What’s their expected alpha??

Edit: As an individual investing directly they may be able to reclaim some of the DWT as a tax credit
 
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