Invest equities long term

[noproblem]

Inflation in Ireland is about 2% over the last 25 years. So a real return of 4%.

I would take a 4% real return over 25 years if you offered me.

The thing is, no one will offer you that return and if they do, they won't guarantee it. In other words, in hindsight you'll get it and that sounds real good to some

 

[joe sod]

I

There are many reasons why this is the case, many of them speculative. But what it tells me is that the world economy seems able to tolerate "loose" monetary policy without runaway inflation anymore.

It will be interesting to see whether that still holds in the next few years. I think we are definitely heading back to much higher inflation rates, once the inflation genie is out of the bottle it is very difficult to put him back in , the 70s proved that, once again the primary mover in this is energy but also the curve ball thrown into the mix by the covid lockdowns. It hasn't gone away you know, it just had a very long sleep.

 

[Steven Barrett]

And also out of curiosity are these are these returns per annum quoted in real terms i e after being adjusted for inflation. Im sure everybody would be very interested in having this clarified.Thanks p s lets use the average inflation over say the last 50 years inflation may be low now but sooner or later it will rear its ugly head again as it always has.Sorry this question is for Steven.

Of course it is in real terms. Dealing with actual policies will always be in real terms. It is an easy calculation to make, time, present value (contribution), future value (current value) and you get the rate. 6.2% per annum

 

[moneymakeover]

Interest rates have been very loose globally since 2008. Pretty much everywhere at or near zero. Far lower than anyone (c 2005) thought they could be sustained at without stimulting inflation.

What has happened globally to inflation? It is has fallen, fallen, fallen. Not just in rich countries. Global inflation was just 2% last year. Probably the lowest since fiat currencies were introduced.

There are many reasons why this is the case, many of them speculative. But what it tells me is that the world economy seems able to tolerate "loose" monetary policy without runaway inflation anymore.

The concern about markets crashing which is popular these days, I believe, is based on higher inflation and interest rates.

As you say, for years now interest rates are rock bottom and money supply keeps increasing.

What is the reason for the years of low inflation?

Economic shocks: great recession followed by pandemic triggered huge money printing.

And bond purchasing/quantitative easing seems even more deflationary than money printing sad evidenced by Japan in 90s

Also globalisation.

Tech disruption: Uber, Amazon, grand scale websites pushing down unit costs.

Chinese manufacturing. Inexpensive, high quality goods.

Each country wants to encourage exports by devaluing currency via low interest rates.

Cheap labour supply due to migration from poorer countries to more well off countries.

There's probably other reasons I have missed.

US 10 year bond yields have risen recently to 1.6%
Much higher than say Germany or Japan. Higher than uk.

Is it high enough for stock markets to sell off?
Is it rising quickly enough to be concerned?

 

[noproblem]

Sad state of affairs when a few (wealthy ones) people can make that decision.

 

[DK123]

Of course it is in real terms. Dealing with actual policies will always be in real terms. It is an easy calculation to make, time, present value (contribution), future value (current value) and you get the rate. 6.2% per annum

Hi Steven. Sorry i am still a bit confused here.Lets keep this simple for us laymen.My question concerns inflation.Can you please clarify if it is 6.2 percent minus 2 or 3 percent likely inflation so would equal 4.2 or 3.2 percent in real terms after i it is adjusted for inflation at the end of the term or is it not. Thanks.

 

[moneymakeover]

When I started this thread I was worried after pension adviser warned me a crash was on the way

Apparently the idea is there is a crash every 10 years and we're overdue.

Pasting history below from

S&P 500 Total Returns by Year Since 1926

www.slickcharts.com

S&P 500 Total Returns by Year​

Year	Total Return
2021	21.70
2020	18.40
2019	31.49
2018	-4.38
2017	21.83
2016	11.96
2015	1.38
2014	13.69
2013	32.39
2012	16.00
2011	2.11
2010	15.06
2009	26.46
2008	-37.00
2007	5.49
2006	15.79
2005	4.91
2004	10.88
2003	28.68
2002	-22.10
2001	-11.89
2000	-9.10
1999	21.04
1998	28.58
1997	33.36
1996	22.96
1995	37.58
1994	1.32
1993	10.08
1992	7.62
1991	30.47
1990	-3.10
1989	31.69
1988	16.61
1987	5.25
1986	18.67
1985	31.73
1984	6.27
1983	22.56
1982	21.55
1981	-4.91
1980	32.42
1979	18.44
1978	6.56
1977	-7.18
1976	23.84
1975	37.20
1974	-26.47
1973	-14.66
1972	18.98
1971	14.31
1970	4.01
1969	-8.50
1968	11.06
1967	23.98
1966	-10.06
1965	12.45
1964	16.48
1963	22.80
1962	-8.73
1961	26.89
1960	0.47
1959	11.96
1958	43.36
1957	-10.78
1956	6.56
1955	31.56
1954	52.62
1953	-0.99
1952	18.37
1951	24.02
1950	31.71
1949	18.79
1948	5.50
1947	5.71
1946	-8.07
1945	36.44
1944	19.75
1943	25.90
1942	20.34
1941	-11.59
1940	-9.78
1939	-0.41
1938	31.12
1937	-35.03
1936	33.92
1935	47.67
1934	-1.44
1933	53.99
1932	-8.19
1931	-43.34
1930	-24.90
1929	-8.42
1928	43.61
1927	37.49
1926	11.62

 

[moneymakeover]

Hi Steven. Sorry i am still a bit confused here.Lets keep this simple for us laymen.My question concerns inflation.Can you please clarify if it is 6.2 percent minus 2 or 3 percent likely inflation so would equal 4.2 or 3.2 percent in real terms after i it is adjusted for inflation at the end of the term or is it not. Thanks.

I realise this a few months old but I was reading back

And @DK123 the answer to your question is yes you are correct
6.2 minus inflation which is small eg 2 or 3
Therefore as you say 4.2 or 3.2 after inflation

 

[moneymakeover]

Sp500 close to 4800
Amazing continued growth
29% in 2021 to date

 

[cremeegg]

For example, I did a review recently for a client who made a single premium contribution in 1995. That money has seen the dotcom crash, the credit crunch as well as the Covid crash. It has also experienced the upsides too. The annualised rate of return over the 25.5 years the money was invested? 6.2% per annum.

The problem with this is that you think it is a good return.

I invested €12,000 in an investment property in 1999 (10% deposit). I have collected over €300k rent in that time. Profit after interest and capital repayment approx €150k. While there was no guarantee with that investment, none of those numbers are in any way exceptional.

That is an annual return of 68% if my maths is correct. Before looking at any capital appreciation.

 

[moneymakeover]

Well done @cremeegg
Great to hear a positive property story.
I think property and equities correlate to some extent.

Both are hedges against inflation.

I guess with 150k capital repayment you must be almost mortgage free?

And then the rent will add to your monthly income

 

[Brendan Burgess]

That is an annual return of 68% if my maths is correct. Before looking at any capital appreciation.

Hi cremeegg

You are comparing a passive investment in a fund with a business of property investing. Did you make a deduction for paying yourself for the time you put into it?

And the risk was huge. Look at all the people who bought investment properties and lost them due to the bust. Many still are paying off the debt although they have lost their property.

If I borrow €200k from the bank and buy a property for €200k then I could get an infinitesimal return.

Brendan

 

[moneymakeover]

Brendan, do you mean infinite?

infinitesimal
adjective
extremely small.

 

[DK123]

Hi cremeegg

You are comparing a passive investment in a fund with a business of property investing. Did you make a deduction for paying yourself for the time you put into it?

And the risk was huge. Look at all the people who bought investment properties and lost them due to the bust. Many still are paying off the debt although they have lost their property.

If I borrow €200k from the bank and buy a property for €200k then I could get an infinitesimal return.

Brendan

Hi Brendan.I am a senior citizen with an investment property/house paid for after a 20 year morgage paid off.I dont think i needed to get paid for time as the time was minimal with long term tenents.For me it was just a hobby.I never considered it a risk and slept soundly.My figures are similiar to Cremeegg.Ithink that the magic bullet was gearing up ,[10 per cent deposit and 90 percent morgage] and i would never take a huge risk like this in shares although i have a few long term shares as well but without the gearing the amounts and gains are smaller.I now have the option of selling the house and spending the money to avoid IHT or investing the gains or keeping the property and renting it out as usual.[The gearing factor makes me tend to favour property over equities]Just my humble view.

 

[noproblem]

Hi Brendan.I am a senior citizen with an investment property/house paid for after a 20 year morgage paid off.I dont think i needed to get paid for time as the time was minimal with long term tenents.For me it was just a hobby.I never considered it a risk and slept soundly.My figures are similiar to Cremeegg.Ithink that the magic bullet was gearing up ,[10 per cent deposit and 90 percent morgage] and i would never take a huge risk like this in shares although i have a few long term shares as well but without the gearing the amounts and gains are smaller.I now have the option of selling the house and spending the money to avoid IHT or investing the gains or keeping the property and renting it out as usual.[The gearing factor makes me tend to favour property over equities]Just my humble view.

You got lucky Bud, count your blessings.

 

[Brendan Burgess]

Brendan, do you mean infinite?

Well spotted. Yes. Infinitely large return.

Brendan

 

[Brendan Burgess]

I never considered it a risk and slept soundly.

A lot of people who slept soundly got a rude awakening.

The fact that people don't appreciate risk, doesn't mean that they are not taking risk.

The timing worked out well for you. For many others, the timing was bad, and their lives have been ruined.

Brendan

 

[SPC100]

The problem with this is that you think it is a good return.

I invested €12,000 in an investment property in 1999 (10% deposit). I have collected over €300k rent in that time. Profit after interest and capital repayment approx €150k. While there was no guarantee with that investment, none of those numbers are in any way exceptional.

That is an annual return of 68% if my maths is correct. Before looking at any capital appreciation.

If you could get the mortgage and put the 120k in shares back then I wonder how it would compare. Leverage is powerful.

I also think you are underselling your return. You should imo include the after tax euros you would have if you sold it (and cleared any mortgage).

 

[cremeegg]

Hi cremeegg

You are comparing a passive investment in a fund with a business of property investing. Did you make a deduction for paying yourself for the time you put into it?

And the risk was huge. Look at all the people who bought investment properties and lost them due to the bust. Many still are paying off the debt although they have lost their property.

If I borrow €200k from the bank and buy a property for €200k then I could get an infinitesimal return.

Brendan

You are correct in saying that there was time and effort on my part, but I met lots of diverse and interesting people along the way, and I have no interest in watching football or playing golf. But that is a small matter.

The big matter is the risk. I never owed more than €800 on the mortgage.

The risk of having a property in a reasonable letting location unrented is small. Of course there may be a few weeks of voids but over any reasonable period for a property investment the risk is negligible.

The risk of having a tenant stop paying rent and refusing to move out was small then though it is more of a concern recently.

 

[cremeegg]

A lot of people who slept soundly got a rude awakening.

The fact that people don't appreciate risk, doesn't mean that they are not taking risk.

The timing worked out well for you. For many others, the timing was bad, and their lives have been ruined.

Brendan

I don't accept that this ever happened, can you outline an example. An example where a property in a reasonable location, purchased at a reasonable rental yield, and not promoted by some dodgy developer or investment manager, worked out badly.