I’ve spent a good amount of time staring at our Random Return Quilt
It shows the returns from six asset classes over each of the last 10 years and the decade as a whole.
What strikes me is just how random the returns have been. If I gave you coloured tiles and asked you to make a 6 by 10 random pattern, I doubt it would look as random as this.
My staring led to the following observations, which seem to me to confirm just how random returns are:
- Total UK CPI inflation over the period was 23%, everything other than commodities beat this mark handily;
- Five of the six asset classes were an annual top performer. Only UK shares didn’t top the charts, although they still doubled your money over the decade;
- Four out of six were the annual worst performer. And only UK and Overseas shares were never the worst performers;
- All six had at least one negative year and all produced a double digit gain at least once;
- Every year had at least two asset classes making money. 8 out of 10 years had 3 or more asset classes making money;
- There was only one repeat top performer – commercial property did best in both 2014 and 2015;
- 2010 was the only year without a loser. Whereas 2011 and 2018 were “horrible” with four losers;
- UK and overseas shares were the top performers in only two years, but easily the best performers over the decade;
- Bonds and property were the top performers in three years, but only produced half the return of UK and overseas shares over the decade;
- If you could have picked the best performer each year (nobody did) you would have quadrupled your money (up 397%). Picking the worst performers each year would have more than halved your money (down 64%);
- Chasing returns – if you backed the previous year’s winner the next year you lost 17% over the decade. If you had backed the previous year’s loser, you made 51%;
- If you invested in each of the six equally, you’d be up 73% over the decade;
- TCFP’s 80% equity / 20% bond approach virtually doubled your money (up 97%) which is 4x inflation over the decade. 100% equity, sensibly spread, returned only a little more (105%), but the journey was more “exciting”;
- If you thought shares were the devil’s work, investing in bonds, property and commodities made 35%, which is only 30% of equity’s return;
- There were a total of 18 negative years across all six asset classes out of 60 total. Or a 30% chance of picking a loser in any particular year, versus a 70% chance of a winner.
So, what does all that mean? To me, it means you should be invested, remain invested and be diversified.
And I’m convinced that “thinking” about what was going on, paying attention to economic reports, experts, the press, studying, etc., wouldn’t have been worth the time and effort.
Our inert approach would have done four times better than inflation, and that is more than enough to keep any reasonable financial plan on course for complete success.
How much more return would you need to make for all the time and effort of “thinking” to pay off? And haven’t you got something better to do anyway? And what about the risk you get it wrong and do worse than what the investment gods willingly give you on a plate with virtually no effort at all?
TCFP earns its corn by helping you have the courage to be and remain invested and to stop “thinking”. Isn’t the outcome above and the peace of mind that comes with it worth multiples of the fees we charge? What value would you put on it?
All we know, and what the last decade demonstrates, is that you can get what you need (and then some?) by:
- Investing in rational decisions makers (the millions of employees in all those companies);
- Not second-guessing what might do terrifically or horribly next year;
- Remaining invested and accepting there’ll always be winners and losers.
Anything and everything that might blow you off course happened in the last decade – economic crisis, environmental crisis, war, terrorism, Brexit, Trump. It’s the same every decade but the outcome was just fine for those that could stick to their plan.
Mark my words – the next decade will be the same, we will be euphoric, scared witless, tested to the extreme and wonder “what next?” And, through it all, we will stick to your plan and we will get broadly the same outcome.
The investment gods will keep up their end of the bargain, TCFP will keep you on the straight and narrow, leaving you to get on with what’s really important – love, life and family.
future proofing your finances
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