Unless you are a committed investment market follower you are only likely to see or read investment news via headlines in the national press or TV News. Unfortunately, bad news sells more than good news, so the headlines are predominately bad, leading many to be wary of investments involving shares. To put matters right we provide below factual and historic data based on investments going back 115 years on investing in different equity and bond splits and as can be seen 100% equity had produced an 8.8% compound return over the entire period whilst the 100% bond exposure provided 5.3% - 40 % equity provided 7% per annum on average. Interesting to note is the maximum gain (in blue) and the maximum loss (in red) for any one year showing that gains surpassed losses significantly in every category of Equity/Bond splits.
Range of returns for various equity/bond allocations:
Rolling 12-month total returns 1900-2015
Past performance is not a reliable indicator of future results.
Source: Vanguard calculations, based on Barclays UK Equity Gilt study, Thomson Reuters, FTSE, MSCI, Citigroup and Barclays.
Notes: Reflects the maximum and minimum calendar year returns, along with the average annualised return, from 1900-2015, for various stock and bond allocations, rebalanced annually. From 1900 through 1984, stocks are represented by the Barclays Equity Gilt Study from 1900 to 1964, Thomson Reuters Datastream UK Market Index Jan.1965 - Dec.1969; MSCI UK Jan.1970 - Dec.1985; Thereafter, stocks are represented by MSCI All Country World Index. Bonds are UK as represented by Barclays Equity Gilt Study 1900-1976 ;FTSE UK Government Index Jan.1977-Dec 1984, Citigroup World Global Bond Index from 1985 through 1989, Barclays Global Aggregate Index thereafter. Returns are in sterling, with income reinvested, through 2015.
Investment risk profile
Whether you are a cautious, middle of the road, or an adventurous type of person when it comes to investing, a suitable tailored investment plan consisting of fully researched investment funds can be tailored to your profile. Like everything in life risk comes at a price – the more risk you take the greater the potential reward BUT the bumpier the ride is likely to be. The following charts are based on three actual funds on 6th September 2016 and are provided merely to show the difference in volatility and performance of a low, medium, and high risk strategy exhibited over 5 years.
It is very important to select the right risk profile so as to avoid sleepless nights when the high risk funds are suffering as will be inevitable from time to time. At the same time with interest rates virtually at 0% and unlikely to change anytime soon it is equally important to provide your capital some chance of growing and/or providing a reasonable income. The right risk strategy that you are comfortable with will be agreed before investment is commenced.