Future investment returns

[toofast2live]

Grim reading, and who knows whether it will have this out turn, but I can’t fault his views on elevated values and the impact on investment returns. Implications for retirement investing if the horizon is 7 to 12 years?

https://www.cmgwealth.com/ri/radar-equi ... r-returns/

If only NSI index linkers were around. It’s the only asset I feel comfortable with! (Retired 15 years, age 63 now, final salary pension that covers all costs.)

[johnhemming]

I don't think the London market is as overvalued. I don't have figures for the current PE (forward or trailing), but the reports I have found indicate something around 18ish. (from Jan 2018) Median PE in the article for the US is 27ish.

I am not myself of a view that the London market is necessarily significantly overvalued in any event. I think Brexit uncertainty is holding certain stocks down.

[toofast2live]

Problem is that the undervalued FTSE goes down when the S&P goes down. Therefore no protection in undervalued FTSE!

[tjh290633]

I can't see how the FTSE100 yielding in the region of 4% is a bad thing. If you are investing for retirement, it is income that you need from your investments.

TJH

[Lootman]

I don't think the London market is as overvalued. I don't have figures for the current PE (forward or trailing), but the reports I have found indicate something around 18ish. (from Jan 2018) Median PE in the article for the US is 27ish.

Where do they get that 27 from?

I see the S&P 500 on a P/E of 18 - about the same as the UK. Only the US has higher growth and so, if anything, is better value than the UK. There is quite simply no way you can buy UK companies with the quality and growth profile of Apple, Google, Amazon etc.

[Dod101]

I can't see how the FTSE100 yielding in the region of 4% is a bad thing. If you are investing for retirement, it is income that you need from your investments.

A cash deposit savings account that paid back 4% of the accounts balance once each year into your no interest cheque account is no better (and worse for some) than if that amount was simply left within the savings account.

Money is fungible so it does not matter where it comes from. Dividends are no different than creating a self-made dividend by selling capital. You're just letting the individual companies' dividend policy dictate your withdrawal rate, rather than setting it yourself. Dividends, if not reinvested, consume capital. Don't make the mental mistake of thinking it is any safer than someone else with a similarly withdrawal rate out of total return.

I think most of know and appreciate that and your comment does not take the discussion much further. If I find myself saying something equally trite I usually bin it before pressing the Submit button.

To state the equally obvious many of us would rather not have to chose the time to sell all or part of an equity holding to raise the capital to live off. And you know what? Many companies make periodic payments in cash straight from the company's coffers to our own, so saving us the need to time our sale and leaving the original investment intact. That convenience to those of us requiring a regular income is known as 'living off our dividends' and we get used to that very quickly, sometimes I daresay adjusting our cash requirements to the yield derived from these dividends.

Dod

[Alaric]

Many companies make periodic payments in cash straight from the company's coffers to our own, so saving us the need to time our sale and leaving the original investment intact. That convenience to those of us requiring a regular income is known as 'living off our dividends' and we get used to that very quickly, sometimes I daresay adjusting our cash requirements to the yield derived from these dividends.

I'm inclined to think of dividends as rental payments made by Companies for use of capital. They could have raised capital directly from banks or by fixed interest bonds, but choose to use the equity route. In exchange for a higher risk of default or suspended dividends, the investor gets a higher return than by depositing it with a bank or lending it to a government. On a total return basis, potentially a much higher return.

[toofast2live]

I don't think the London market is as overvalued. I don't have figures for the current PE (forward or trailing), but the reports I have found indicate something around 18ish. (from Jan 2018) Median PE in the article for the US is 27ish.

Where do they get that 27 from?

I see the S&P 500 on a P/E of 18 - about the same as the UK. Only the US has higher growth and so, if anything, is better value than the UK. There is quite simply no way you can buy UK companies with the quality and growth profile of Apple, Google, Amazon etc.

http://www.multpl.com/

S&P 500 pe 25.49 on Friday.

[johnhemming]

They said they were using a median figure. My own personal view about Apple is that they will hit a limit on growth. Facebook are competent, but I think they are also limited compared to Google and Amazon.

[Lootman]

http://www.multpl.com/

S&P 500 pe 25.49 on Friday.

There are different ways of computing it. An obvious one is whether you use trailing or forward earnings. With a company like FaceBook growing at 20% a year, the two numbers would be 20% different from each other.

Also there are companies with large cash holdings and cash should really be stripped out to get a truer sense of the P/E.

Again, the average for the S&P 500 is skewed by the staggeringly high P/E's on just a few very large companies. For instance, Amazon's P/E is about 100 and may even be infinite since, in a sense, it doesn't have any earnings. It keeps going up anyway. Or how about Netflix on a 200 P/E?

So a few largecap tech names with high P/E's and large cash holdings distort the averages. The UK doesn't have that "problem". And P/E ratios have been of declining use in predicting future returns precisely because of these outlier success stories.

Personally I find a P/E ratio is more useful for comparing shares within the same sector, and not across sectors.