D’ye remember Ritchie’s pension calcuation?

The Murphmonster and Colin Hines put together their pensions proposal. Insisting that the stock market had made people nothing and therefore bonds were the way to go.

You might also recall that they didn’t include dividends in their returns to stock but they did include interest in their returns to bonds. It does rather make a difference:

The FTSE 100, inflated by this irrational exuberance, was perched at a peak of 6930 just two days before the Millennium New Year’s Eve celebrations.

Those buying into the stock market will have been horrified to glimpse the future and see that today it stands at 6466 – 7pc lower. It would have turned £10,000 into £9,137.

But that’s before dividends are included, as data collated by Hargreaves Lansdown shows. If you bought the right type of fund (accumulation rather than income – more is explained here) then £10,000 would have grown to £15,213.

It’s a paltry compounded annual return of 2.8pc, according to our sums. But add in inflation, based on the retail prices index, and the return disappears altogether. In fact, you would have lost £138 in real terms.

Anyone care to tell us what the inflation adjusted bond return was over the 15 years? Given the fall in long term interest rates it could be quite good for a fund that was in long bonds before that fall. But I rather doubt that it’s quite as good as against stocks as Ritchie and Colin told us.

11 thoughts on “D’ye remember Ritchie’s pension calcuation?”

  1. So Much for Subtlety

    Anyone care to tell us what the inflation adjusted bond return was over the 15 years?

    Doesn’t Ritchie want a respectable percentage of everyone’s pension invested in “socially responsible” funds, especially for investment? Anyone know what the return on Concorde was? How about British Rail and British Leyland?

  2. Yes, bad news for all those people who suddenly invested all of their pension savings into equities on the very day the dotcom bubble peaked!

    A fund which was that selective on its performance data period would be fined by the FCA!

  3. Some shares are only worth buying for the dividend: my employer’s, for example. We’ve effectively guaranteed the dividend and consider it so important to maintaining the share price that we’re borrowing money and selling assets to be able to pay it. Discounting the dividends from shares is a bit like discounting overtime pay on somebody’s income.

  4. What BiO said. Picking the top of the market to show how poor the stock market has been is just as insane as picking the bottom to show how good it is.

    Anyway, most people pay in regular, relatively, small amounts and benefit from pound cost averaging.

  5. bloke (not) in spain

    I’m musing on those figures & thinking how completely f*****d the capitalist system has become.
    Over those years a lot of people have worked very hard & created a great deal of wealth. Prudently, they’ve invested a large portion of that wealth through their savings & pensions so they can enable & participate in the creation of further wealth.
    That’s how it’s supposed to work, isn’t it?
    And what have they got to show for it?
    A few rich people at the top of the system have got even richer.
    Politicians have preened & postured in their second homes with their third mistresses.
    An accumulating horde of public sector drones have waxed fat & happy.
    An army of the lazy & indolent have watched a great deal of daytime TV, chewing their way through planetary masses of junk food.
    House prices have soared to unprecedented peaks. A store of wealth which can only be realised by the holders selling it to each other. And, if they ever tried it’d evapourate like morning dew.
    Is it all really worth it?

  6. Has he never heard of diversification and rebalancing? Sure, if you put all your money in one asset and leave it, you might make money (ask homeowners) but you’re just as likely to lose it (ask homeowners in a couple of years when rates go up and values go down and banks go illiquid again). If he wanted to look at investing, some money would be in the FTSE, some in other markets, some in property / REITs, some in bonds – and you’d expect to have seen fairly consistent growth over those years of between 5 and 8 pc p.a. and occasionally some barnstorming double figure percentages.

    He’s mad, bad or stupid. Perhaps all of them.

  7. Never figured out the ‘rich get richer’ complaint. Some of my friends are always saying it.
    If you win £10 million on the lottery you could consider yoourself rich.
    Could you spend your income from that money? if not then yoou are getting richer.
    if yoou do spend more than your income from that people call you a waster, a person who cannoot manage their money.
    Just can’t win wth money illiterate people.

  8. B(N)IS: The system is not a free market. The system is corporate socialism. The mess is state caused. They distort the market and people malinvest thinking that is the thing to do. Whatever it may be–the banks, housing market–whatever. The state is in there somewhere liked a poisoned worm in am apple.
    The market is not perfect–like humanity itself it suffers from fads and daft thinking–but those foibles cannot cause a mess on the same scale as trying to mix the coercive thuggery of the state with free choice.

  9. Nice one, Mr Ecks. Right on the money. The truly awful thing, though, is that the State knows (IMHO) exactly what it’s doing, directing money to where it will while dressing it in the guise of regulation of free markets.

    Or maybe I really am just the loon that my wife thinks I am.

  10. What would the growth have been in pension funds had not the Monocular Moron helped himself to what had been the recoverable tax credit?

  11. “Never figured out the ‘rich get richer’ complaint. Some of my friends are always saying it.”

    They (B(n)IS excepted) think wealth is a zero sum game.

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