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Expected returns: Estimates for your investment planning

Expected returns are unpredictable. As symbolised by this picture of a pair of dice.

Understanding your future expected returns is an important part of your investment plan.

Your expected return is the average annual growth that you can reasonably hope your portfolio will deliver over time. It may be a real return of 4% per year, for example.

With a credible expected return figure you can work out whether you’re investing enough money to meet your goals – just by plugging your number into an investment calculator.

Give us a few minutes and we’ll show you how it’s done.

What are expected returns?

Expected returns are estimates of the future performance of individual investments – typically asset classes. Expected return figures are provided as average annual returns that you might see over a particular timeframe. Say the next five or ten years. 

The figures are usually based on historical data, but modified by current valuation metrics.

The Gordon Equation is the best known expected returns formula. 

Because future returns are highly uncertain, some sources offer a range of expected returns or probabilities. This emphasises the impossibility of precise predictions. 

Think of expected returns as a bit like a long-range weather forecast. You’ll get some guidance on conditions coming down the line. But expected returns can’t tell you when exactly it will rain. 

Even so, expected returns are a useful stand-in for the ‘rate of return’ required by investment calculators and retirement calculators.

For instance:

A retirement calculator picture shows you where to put your expected returns figure.

You’d put your portfolio expected return number in your calculator’s ‘rate of return’ slot.

By collating estimates for individual asset classes, we can calculate a portfolio’s expected return. See the table below.  

Moreover, because expected return calculations are informed by current market valuations, they may be a better guide to the next decade than historical data based solely on past conditions.

Expected returns: ten-year predictions

Asset class / Source Vanguard (30/9/22)  Research Affiliates (31/12/22) BlackRock (30/9/22) Monevator (21/1/23) Median (21/1/23)
Global equities 7.1 8.7 9 7 7.9
UK equities 5.6 11.4 8.2 8.4 8.3
Emerging markets 8.2 13 10.1 8.8 9.4
Global REITs 10 3 7.6 7.6
UK gov bonds 4.3 3.7 4 3.4 3.9
Global bonds (£ hedged) 4 4
Global aggregate bonds (£ hedged) 4.8 3.6 4.4 4.4
Inflation-linked bonds 7.5 3.5 5.5
Inflation 5.5 3.5 4.5

Source: As indicated by column titles, compiled by Monevator.

The table shows the ten-year expected returns1 for key asset classes, expressed as nominal average annual returns in GBP. 

We have sourced them from a variety of experts.

Monevator’s expected return on equities (including REITs) are calculated using the Gordon Equation.2

The expected return on UK government bonds is simply the prevailing yield-to-maturity of the ten-year gilt. 

For average inflation we used the ten-year UK instantaneous implied inflation forward curve (gilts) chart from the Bank of England

Make sure you subtract your inflation estimate from nominal figures. This gives you a real return figure to deploy.3

Their mileage may vary

As you can see from our table, opinions vary on the expected rate of return.

Methodology, inflation assumptions, and timing all make a difference.

Since our last update, Vanguard and BlackRock have both significantly increased their expected return forecasts. A market fall, ironically, leads to higher expected returns, because earnings and dividend yields improve. You’re paying less for future cashflows.  

Incidentally, Research Affiliates and BlackRock provide expected return rates for more sub-asset classes if those above don’t cover your needs. BlackRock’s tool even offers 30-year projections.

Of course, the longer your timeline, the bigger your pinch of salt.

Portfolio expected returns

Okay, so now what? 

Well, let’s use the asset class expected return figures above to calculate your portfolio’s expected return.

Your portfolio’s expected return is the weighted average of the expected return of each asset class you hold. 

The next table shows you how to calculate the expected return of a portfolio. Just substitute your own asset allocation for the example one below. 

Asset class  Allocation (%) Real expected return (%) Weighted expected return (%)
Global equities 60 3.45 0.6 x 3.45 = 2.07
UK equities 10 4.91 0.1 x 4.71 = 0.49
Emerging markets 10 5.28 0.1 x 5.28 = 0.528
UK gov bonds 20 -0.13 0.2 x -0.13 = -0.026
Portfolio expected return 3.06

Portfolio expected return = the sum of weighted expected returns. Giving us 3.06% in this example.

That’s pretty miserable. But it’s better than the 2.83% we were expecting only six months ago. 

(For this example I used Monevator’s nominal expected returns minus inflation to derive the real return.)

Feel free to use any set of figures from the first table. Or else mix-and-match expected returns for particular asset classes where you can find a source. Research Affiliates and BlackRock should cover most of your bases. 

The expected return of your bond fund is its yield-to-maturity (YTM). Look for it on the fund’s webpage.

Because most sources present nominal expected returns, remember to deduct your inflation estimate to get a real expected return. 

You should also subtract investment costs and taxes. Keep them low!

The expected return of a portfolio formula is therefore: 

  • The nominal expected return of each asset class – minus inflation, costs, and taxes  
  • % invested per asset class multiplied by real expected return rate
  • Add up all those numbers to determine your portfolio’s expected return

The resultant portfolio-level expected return figure can be popped into any investment calculator.

You’ll quickly see how long it’ll take to hit your goals for a given amount of cash invested.

How to use your expected return

Input your expected return calculation as your rate of growth when you plot your own scenarios

Drop the number into any good investment calculator or in the interest rate field of our compound interest calculator.

As we saw, the expected return rate we came up with in the portfolio above is pretty disappointing.

Historically we’d expect a 60/40 portfolio to deliver a 4% average rate of return.

But after a long bull market for equities and bonds – even given the recent declines – market pundits seem to feel there’s less juice left in the lemon. They’ve therefore curbed their expectations.

If you’re modelling an investing horizon of several decades, however, it’s legitimate to switch to longer-run historical returns

That’s because we can assume long-term averages are more likely to reassert themselves over 30 or 40 year stretches. 

The average annualised rate of return for global equities is around 5% since 1900. That’s a real return. Hence there’s no need to deduct inflation this time. 

UK equities weigh in around the same.

Meanwhile gilts have delivered a 1.8% real annualised return

Even though your returns will rarely be average year-to-year, it’s reasonable to expect (though there’s no guarantee) that your returns will average out over two or three decades. Because that’s what tends to happen over the long term.

Excessively great expectations

In contrast, planning on bagging a real equity return of 8% per year is living in LaLa-land.

Not because it’s impossible. Golden eras for asset class returns do happen. But you’ll need to be lucky to live through one of them if you’re to hit the historically high return numbers.

Nobody’s financial plan should be founded on luck. Luck tends to run out.

Opt for a conservative strategy instead. You’ll be better able to adapt if expectations fall short. And you can always ease off later if you’re way ahead. 

Remember your expected return number will be wrong to some degree, but it’s still better than reading tea leaves or believing all your dreams will come true. 

Don’t like what you see when you run your numbers? In that case your best options are to:

  • Save more
  • Save longer
  • Lower your financial independence target number

All are much preferable to wishing and hoping.

How accurate are expected returns?

Expected returns shouldn’t be relied upon as a guaranteed glimpse of the future, as if they were racing tips from a kindly time-traveller. 

Indeed the first time we posted about expected returns we collated the following forecasts:

Expected return predictions dating back to almost a decade ago.

These were long-range, real return estimates but the FCA one in particular was calibrated as a 10-15 year projection for UK investors. 

What happened? Well, the ten-year annualised real returns were actually:

  • Global equities: 7.8%4
  • UK government bonds: -2.6%5
  • A 60:40 portfolio returned 3.7% annualised

The expected return forecasts above now look amazingly prescient. They were previously far too pessimistic but the turbulence of 2022 has knocked both equities and bonds down a peg or three. 

Previously, 10-year actual returns were far ahead of the forecasts but one explanation is that our returns had been juiced by successive waves of quantitative easing from Central Banks. Perhaps, too, the retrenchment of globalisation is also a factor. 

Still, I wouldn’t expect even the greatest expert to be consistently on-target. Rather, it’s better to think of their expected returns as offering one plausible path through a multiverse of potential timelines.

Shock therapy

If you can stand it, go back to your investment calculator and dial in a more pessimistic scenario. Then plug in the lowest of all the respected expected return figures you can find.

Look at the pitiful outcome. Wonder if the decimal point got misplaced.

Scoring that nightmare onto your brain might stop you from anchoring on a shinier expected return.

Okay, that was horrible.

Now increase your expectations and peek at a rosier path for a quick morale boost. 

Feel better? More motivated? Great!

Now try to forget about the dream scenario, and simply invest for all your worth.

Take it steady,

The Accumulator

P.S. This is obvious to old hands, but new investors should note that expected returns do not hint at the fevered gyrations that can grip the markets at any time.

Sad to say, but your wealth won’t smoothly escalate by a pleasant 4% to 5% a year.

Rather, on any given day you have a 50-50 chance of tuning in to see a loss on the equity side of your portfolio.

Every year, there’s on average a 30% chance of a loss in the stock market for the year as a whole.

And on that happy note, I’ll bid you good fortune!

Note: this article has been updated. Some comments below might be past their Best Before dates. Check when they were published and scroll down for the latest input.

  1. Note that most corporates badge their expected returns calculations as ‘capital market assumptions.’ []
  2. Current dividend yield data comes from relevant Vanguard and iShares index trackers. We added on inflation to make our numbers a nominal return. This is purely for comparison purposes with other sources who use nominal returns. Inflation should be subtracted from all nominal expected returns so you’re working with a more realistic real return. []
  3. Real returns subtract inflation from your investment results. In other words, they’re a more accurate portrayal of your capital growth in relation to purchasing power than standard nominal returns. []
  4. Source: Vanguard FTSE All World ETF []
  5. Source: Vanguard UK Gilt ETF []
{ 52 comments… add one }
  • 1 Steve February 4, 2014, 10:08 am

    Your illustrated Bonds die seems to be broken – or you’ve paid over the odds for a non-standard die. The 1 & 6 should be on opposite faces.

    Now to read the actual story …

  • 2 Paul S February 4, 2014, 10:33 am

    Nice summation. Worth noting that Jeremy Siegel calculates the standard deviations of real returns for a 20-year holding period of both US stocks and bonds as about 3%. Using the “consensus” figures from your table of about 5% for stocks and 1.5% for bonds that gives a 1SD spread (68% probability) of 8% to 2% for stocks and 4.5% to -1.5% for bonds.

  • 3 dearieme February 4, 2014, 11:01 am

    Almost all demonstrations of what a good wheeze equities are use only US and UK figures. If you look at the figures for other advanced countries, a different picture emerges. So the question is, is the US now (for instance) like the US in 1950 or like Austria in 1913? Who knows?

  • 4 dearieme February 4, 2014, 11:08 am

    Two other points.

    (i) Looking at the DMS figures, I see that your prediction for a 60:40 portfolio is equal to 0.6 x 3.25 + 0.4 x 0.5 = 2.15. That’s a bit gloomy, in that it doesn’t allow for the merits of an annual rebalance.

    (iii) On the other hand, it’s a bit optimistic in that it doesn’t allow for taxes and charges.

  • 5 Snowman February 4, 2014, 11:09 am

    I like to think of equity returns being like the climate. Equity markets and returns (like climate) are complex adaptive systems not conforming to some nice mathematical probability distribution the mean and variance of which can be inferred from past returns. Because temperatures have averaged x degrees over the past 150 years it doesn’t mean they will average x degrees over the next 150 years.

    That is where the inherent difficulty lies in estimating future returns, and estimates based on purely past returns are of limited use.

    The supply side models that look at what our equities will supply us as investors by way of future dividends are a better attempt to make a prediction of the essentially unpredictable.

    For example if dividends grow with inflation, which is a vaguely reasonable assumption as dividend growth lags GDP growth (because of new ventures where the entrepeneurs setting them up pocket the GDP they create before they are floated on the stock market) then a bit of simple mathematics says real returns will be roughly in line with the current dividend yield in real terms, so the 3 -3.5%pa real return that Dimson, Marsh and Staunton come up with looks by far the most plausible estimate of the unknowable.

    The message then is that it is essential to control costs in equity investing. You can’t afford to lose a lot of a zig-zagging 3-3.5% real return or else you are taking risk for no reason.

    And if you are modelling what real return you need to stop the money running out in later life you need to be realistic about returns.

    Some people taking advice are losing upwards of 2.5%pa through charges and advice costs. As has been pointed out by Paul Lewis (of Moneybox fame) the conclusion is the investor takes all the risk and the financial services industry takes all the reward in those scenarios.

    That is one of many reasons I advocate like monevator a low cost passive approach.

  • 6 neverland February 4, 2014, 11:09 am

    Whether its 2.15% or 4% real there isn’t much room in those numbers to pay for:

    – platform charges
    – dealing costs
    – active management fees

    Just brings home what a crappy deal most people get out from their ISA/pension providers

  • 7 neverland February 4, 2014, 11:11 am


    snap! #groupthink

  • 8 vanguardfan February 4, 2014, 12:03 pm

    So, if we take 3% as an average real return before taxes and costs.
    What assumption should we make for taxes? Obviously if you can shelter in SIPP and ISA you can largely avoid tax in the accumulation phase. What assumptions should be made for taxable accounts? At the moment I’m definitely paying some additional taxes on interest and dividend income. Let’s be cautious and say 20%. That reduces returns to 2.4% real.
    Let’s assume that we can keep costs to 0.5% (I am not sure if I achieve this, with dealing costs, account fees and TERs – I suspect I underestimate the effects of these and could be anything up to 1%). So that gets it down to 1.9% at the lower end, 1.4% at the higher end. Even compounding over 40 years, that’s not going to grow enormously.

    Of course, the further problem with this is that it is meaningless to project any of these figures as a smooth year on year growth rate. What you need to do is simulate returns which give a mean of your selected growth rate but also vary year on year. Any chance of a follow up post on available simulation tools and reasonable measures of volatility to plug into them alongside these growth estimates?

  • 9 Luke February 4, 2014, 2:03 pm

    These forecasts highlight (yet again), the need to keep costs down and your investments away from the grubby mitts of the taxman!

    Using consensus figures and an aggressive 80:20 split over the next 20 years doesn’t return much over 3% real p/a, even when using an ISA.

  • 10 Juan February 4, 2014, 8:29 pm


    The taxes you pay on dividens are simply “not diferred”. You were going to pay them anyway. In other words, you pay them now instead of paying the taxes at the end.

    So the impact of not being able to difer these taxes is not as large as 20%. It is less, I don’t know how much or how to calculate it, but definitely less.

  • 11 The Accumulator February 4, 2014, 11:09 pm

    @ Dearime – the worst of the other developed countries basically amount to the losing sides of WWI or WW2 or both. Given that WWIII will definitely set my retirement back a bit, it seems reasonable to use the UK figures or indeed the aggregate World figures (by which I mean developed world) which are near enough the same as it turns out.

    Here’s Rick Ferri on why it’s not worth hoping for a rebalancing bonus (his conclusion is similar to yours) http://www.rickferri.com/blog/investments/why-correlation-doesnt-matter-much/

    @ Snowman – one of the differences between DMS/FCA and Hale is that Hale is throwing in a bonus for a stiff commitment to risk factors like Value and Small Cap. That’s probably why it’s worth testing the range of numbers (assuming your allocation includes risk factor tilts). It’s as important not to crush your own spirit from the outset as it is to temper expectations.

    @ Vanguardfan – the FCA paper linked to in the table has a section that estimates the tax take from various model portfolios. That’s a good starting point.

    FireCalc is the best Monte Carlo sim I know of. It has a lot of tweakable options. See if it’s what you’re looking for.

    @ Steve – dodgy dice? Sheesh, you can’t trust the internet for nuthin’

  • 12 ermine February 5, 2014, 9:24 am

    The geek in me feels uncomfortable about the use of the term standard deviation for a variable that isn’t normally distributed but has a long term upward drift. However, your logic seems fine to me.

    Appreciating this horrifically large noise signal on top of the market value helped me deal with the highs and lows, congratulations for a clear overview of something that it took me a long while to feel my way towards..

    The active devil in me would suggest the CAPE as a indicator of fair value if you are going to start bandying around numerical analyses of historical data, but I know I shouldn’t 😉

  • 13 The Investor February 5, 2014, 10:11 am

    Personally, I don’t expect stock market returns to be greatly lower in the future than they have been in the past. In fact they may turn out to be slightly higher, as compensation for the extra perceived risk and volatility if it persists, especially relative to bonds.


    Appreciate this is a pretty heretical view. 😉

    I have had the opportunity to argue personally with one of men behind the sources in The Accumulator’s table, and he didn’t really disagree, he just said (following the same logic as T.A.) that his was the most rationale “best guess” and he was employed to give such a guess, not to speculate about ways in which return projects might be confounded.

    I totally see that, and would likely take the same approach if I was a professional forecaster.

    But I think times have been distorting enough recently (massive bond bull market followed by QE taking interest rates to 300 year lows on top of two huge crashes in a decade) that there’s a good chance from an equity perspective, the spread over bonds approach is misleading currently.

    In terms of planning, it’s clearly best to be prudent and respect the view of a wider range of sources. If they turn out to be too gloomy, then great, more Werther’s Originals and afternoon trips to the cinema in your old age. 😉

  • 14 Snowman February 5, 2014, 11:15 am

    @ the accumulator

    Yes, looks like Tim Hale goes for 5% real return for developed equity markets and then the premiums you mention, small cap, value premiums (and emerging markets premium) take it up to 6%pa.

    To get to the 5%pa he says ‘assuming a dividend yield of 3% in the UK and a not unreasonable assumption of earnings growth of 5% in nominal terms and inflation of 3%’.

    Looking at the Dimson, Marsh Staunton analysis of 19 countries real real dividend growth of 19 countries 1900 -2010, just over half of countries have experienced negative real dividend growth. The world figure is 0.83% pa real growth reflecting the high US component (1.17%pa). So Tim Hale’s roughly 2% figure (5% – 3%) looks optimistic.

    Other estimates I have seen start with earnings rather than dividends (or cyclically adjusted earnings x a sustainable payout ratio) so there is scope for turning the real return on equities to a figure you are happier with.

    A 3% real return on equities would do me fine so I take comfort from the DMS figures, if I needed a bit more I might focus on one of the other estimates!!

    As long as we are all happy and in good health we should be able to deal with the inevitable divergence from our estimates.

  • 15 neverland February 5, 2014, 1:47 pm

    Things didn’t use to be this way and returns look awful going forwards

    For instance there are at least five (risk free) UK government index linked gilts in issue that paid (when issued at par) RPI plus more than +2%

    They were all issued before 2005

    So basically up to 2005 you could achieve, risk free, the same real rate of returns (after costs) that DMS/low end FCA say you should be able to achieve with a mixed bond/equity portfolio

  • 16 dearieme February 5, 2014, 2:00 pm

    Ah, neverland,the early issues of index-linked savings certificates knocked 2% + RPI into a cocked hat.

  • 17 Rob February 5, 2014, 4:28 pm

    I did my calculations based on a 5% annualised return using a Hale-like 100% equity portfolio (well, and some in cash). According to most of the predictions above, perhaps I’m being optimistic?

    My portfolio risk is already high. Even if I knew the rate of return would be say 2%, I’m not sure it would make a huge difference – I try to save as much as I can anyway.

    This is where (wannabe) early retirees get the advantage – if they’re running short, they can increase savings rate and/or save for longer. And the higher the savings rate (% of income), the less difference the rate of return makes (less time for compounding). So the take home is surely save as much as you can and aim to retire early, if only for the added safety margin?

    As an aside, I wonder whether many of these places keep their estimates deliberately low to avoid another PPI/endowments etc. scenario. I can’t really see MoneySavingExpert running a campaign complaining people are much richer than they expected…

  • 18 neverland February 5, 2014, 5:14 pm


    Two massive stock market crashes are what put paid to the previous comfy 10%+ (including inflation) equity return predictions

    All the FTSE-100 has given you since 31 December 1999 is a minus 8% capital loss and maybe 50% back in dividends

    I think that is actually less than inflation (RPI Dec 1999 = 167.3, RPI Dec 2013 = 253.3), before costs/taxes are even taken into account

  • 19 The Investor February 5, 2014, 6:37 pm

    I don’t have a source to hand — UK total returns are a bane to get hold of — but the total return from the FTSE 100’s late 1999 peak would be something like 2% a year to now, going on the last data point I’ve lodged in my head.

    So basically flat, in real terms.

    However I don’t think it’s very useful or insightful.

    That was the peak of a bubble of historic proportions. And anyone who invested all their money — from nothing to everything — into that one asset — and one index to boot — at the top would have paid a deserved price.

    In the real world investors put new money into the markets for decades. If you’d invested £1,000 a year into the FTSE 100 from 1990 to 2014, say, and reinvested all dividends, you’d have done okay. And if you’d invested across a diversified portfolio of global equities and other assets including bonds, cash, property, small caps, and precious metals, you’d have seen a return something like 10% p.a. nominal, as an informed guess.

  • 20 NaeClue February 5, 2014, 7:10 pm

    Snowman, you started off well and then wrote this:

    “For example if dividends grow with inflation, which is a vaguely reasonable assumption as dividend growth lags GDP growth (because of new ventures where the entrepeneurs setting them up pocket the GDP they create before they are floated on the stock market) then a bit of simple mathematics says real returns will be roughly in line with the current dividend yield in real terms, so the 3 -3.5%pa real return that Dimson, Marsh and Staunton come up with looks by far the most plausible estimate of the unknowable.”

    A simplistic dividend argument like this would imply the UK market would return 3-3.5%, the US market by 1.8% and the Japan less than 1%. Nonsensical?

  • 21 NaeClue February 5, 2014, 8:59 pm

    To be a bit geeky, this is not quite right:

    “If your expected return is 5% but the asset’s standard deviation is 20%, then two out of three annual returns can be expected to fall roughly within the range of -15% to +25%.
    Nineteen out of 20 returns would fall within two standard deviations: -35% to +45%.”

    The reason is that the returns on asset prices are not normally distributed. An asset can go up by 200%, but not down 200%. A better distribution for asset prices is a lognormal distribution. If you use this, with volatility 20%, expected (0sd) return 5%, then this implies an underlying continuously compounded drift of about 7% (ln(1+5%) + (20%)^2/2) and gives a 1sd case “two out of three annual returns can be expected to fall roughly within the range of -14% to +28%”, 2sd case “Nineteen out of 20 returns would fall within two standard deviations: -30% to +57%.”. So always skewed to give a bit more upside to the percentage numbers than downside.

    The 71% fall you mentioned would be more than a 6sd event (2 in a billion). That would give a range of -68% to +249% in a year, based on 20% vol, 5% expected return. This is where the basic statistical model shows itself up as being inadequate, unless you believe that a 2 in a billion chance really cropped up.

  • 22 NaeClue February 5, 2014, 9:34 pm

    Good article by the way. Even more reason to squeeze intermediaries and fund providers until their pips squeak.

  • 23 Snowman February 5, 2014, 9:46 pm


    I used the UK as it is the market most of us are most familiar with.

    One of the reasons I suspect the US dividend yield is lower is because of the prevalence of share buybacks in the US. These probably account for as much of distributed profits as dividends so would explain the apparent discrepancy.

    Don’t know if anyone who has a better understanding of the US market can confirm this.

  • 24 Snowman February 5, 2014, 11:01 pm

    I keep a record of the FTSE all share total return index (at the end of each month)

    To answer the earlier question since 31 December 1999 to 31st January 2014 the FTSE all share TRI has returned 0.9%pa in real (RPI) terms.

    The FTSE all share total return index (measured only at the end of each month) reached an all time high in real terms on 31st December 2013. That is if you had invested on the last day of any month until 31st December 2013 your investment would have increased in real (RPI) terms if you had achieved a return in line with the FTSE all share index.

  • 25 Paul S February 6, 2014, 10:33 am

    Nice post. I enjoyed the maths lesson. I suspect the reason that the 1972-1974 fall seems so extreme is that it is derived from point to point data (daily or monthly) rather than annual averages (it might only be capital too not total return, I don’t have the UK data to check).

    The fall in the US market total return for that period, using annual averages, was 33% which is hardly outside the 2SD spread which you derived.

  • 26 NaeClue February 6, 2014, 1:11 pm

    @Snowman, The UK market does share buy backs to, as well as rights issues, liquidations, management buy outs, issuing debt, corporation tax and its fair share of Ponzi schemes that when uncovered result in dividends stopping and sometimes capital being wiped out. There are far more flows into and out of companies than just dividends, which is why I consider any approach which just looks at dividends is at best naive and at worst a marketing scam by someone trying to sell a fancy Smart Tracker.

  • 27 dawn February 10, 2014, 4:43 pm

    hi . can anyone advise?
    im looking for the cheapest ss isa platform and the share centre looks best for me at £57.60 a per year fixed fee.[my balance I expect by next year £40000] Halifax share dealing ss isa comes in at £12.50 a year blackrock and vanguard funds appear to be avaliable to put in it this isa. but when I google around it never comes up in the searches. whats the problem with the Halifax ss isa. its seems so cheap at £12.50 a year. am I missing something???/

  • 28 The Accumulator February 10, 2014, 11:20 pm

    Dawn, take a look here at iWeb and Interactive Investor: http://monevator.com/compare-uk-cheapest-online-brokers/

    I think they’ll work out better than Halifax or The Share Centre.

  • 29 dawn February 11, 2014, 2:08 pm

    thanks accumulator
    ive looked at i web. it has the vanguard and blackrock funds i want to put in and it appears to be just £25 opening fee and thats it platform charge wise!
    so prob go with them now
    love your site its so helpful

  • 30 BBBobbins September 13, 2022, 12:57 pm

    Ah early on the updated comments. I’d kinda shortcut all that on my future modelling by putting in net growth of 1-3 so I assumed investment returns led inflation over time by that much. The 3 being rosy

    Given current headwinds wonder if I should run at -1,-2 etc and see when I run out. Something tells me that that is crazy talk in the long term as if I can’t find an asset that at least matches inflation we’re all stuffed ultimately.

    How paranoid are people getting?

  • 31 SemiPassive September 13, 2022, 6:52 pm

    Any chance of adding investment grade corporate bonds ?
    I must say they are starting to tempt me now YTM on a couple of my favourite ETFs has burst through 5% (so maybe a 1% real return on your inflation rate).
    Maybe we’ll be past 6% on iShares IS15 in the next 3-6 months. A lot to like for such low volatility. I’m certainly planning on adding an allocation to smooth income volatility, overall volatility, and add an element of predictability.

  • 32 Gentleman's Family Finances September 13, 2022, 9:16 pm

    I personally use 0.5% a month for asset price growth and 0.25% for inflation.
    It makes the monthly accounts easy to calculate and doesn’t exaggerate the growth.

    I’ve read of some FIRE people saying that 10% a year is normal…

    My own experience is that I’ve beaten my 0.5% a month over 20 years (around 0.9%) but I’m not in favour of changing as it pays to be a pessimist in the long run (better to be pleasantly surprised than suddenly disappointed)

  • 33 Hariseldon September 13, 2022, 9:38 pm

    The comments from 2014 were very interesting.

    The problem is taking the present concerns and assuming that this will have any relevance over a 10 year period.

    I started to take investing seriously in 1990, the invasion of Kuwait seemed to be causing undue pessimism, since then we have had so many ‘worries’ and yet despite everything I have found that my rolling 10 year returns have always been 10% plus despite so many errors on my part.

    The more talk you have of low returns going forward, the more likely a surprise on the upside.

    Now if the forecasts going forward were rosy…then it’s time to be worried.

  • 34 Boltt September 14, 2022, 7:43 am


    I recently bought a house-sized amount of pref shares (mostly insurers) yielding 6% pa. They currently offer around 7%.

    The income security, for the gap until my FS starts, is the main reason, and I like perpetuities. I may be down 15% but through my rose tinted glasses I’m getting the equivalent of 10% gross – I’m in danger of HRT at some point and they’re are nicely wrapped up in an ISA blanket

    Probably some endowment effect / bias going on!

  • 35 The Accumulator September 14, 2022, 10:58 am

    @ SemiPassive – yeah, good shout. I will add investment grade corporates in the future. I almost did this time around but TI was shouting something about “Deadlines!” to me.

    @ BBbobbins – I actually woke up this morning thinking, “I should cut back on bonds” with the image of the Bank of England’s implied inflation forward curve looping in my head.

    We really are stuck between a rock and a hard place. I know I’ll need those bonds if a deflationary recession hits but am worrying they’ll take a bath in inflationary acid in the meantime.

    @ Hariseldon – I guess if anyone plugged those low expected returns into their calculator in 2014 (as I did!) then they’re now further ahead than they expected to be. I agree that when things appear to be going smoothly, they’re actually going downhill. Can’t remember the last time I thought the world was heading in the right direction though 🙂

  • 36 Naeclue September 14, 2022, 12:44 pm

    I would be happy enough with 3.4% real on our global equities over the next 10 years and that seems a realistic figure to me considering the substantial rate of return we have enjoyed over the last 10.

    I would echo the comment I seem to have made 8 years ago “Even more reason to squeeze intermediaries and fund providers until their pips squeak.” If you are only getting 3.4%, then paying just 0.5% out in costs knocks 15% per year off your return.

    Bit off topic, but for those interested, short dated gilts are now giving good returns compared with the best bank deposits, which is unusual. I bought a substantial amount of the 0.125% 31/01/2024 gilt yesterday, with a net rate of return of 2.9%. Best I can get on 1 year deposits was about 3.3% gross, which works out at 2.6% for basic rate taxpayers and 2.0% for higher rate payers. The low coupon on the gilt means most of the return comes from the capital gain, which is not taxable.

  • 37 Seeking Fire September 14, 2022, 2:22 pm

    Naeclue – That’s very helpful thanks. I’ve been looking at some way of parking some cash for up to a year taking into account both the tax and also very low risk safety considerations. Seems as if then you’ve strayed a little from just being in cash!

  • 38 The Rhino September 14, 2022, 3:36 pm

    Having been absolutely hammered on my bond holdings since the first COVID lockdown surge I do dearly wish I had Naeclue’s active nous when it comes to them! Not far off 30% peak to trough.. ouch! I should be rebalancing but it’s hard as you question whether you know what you’re doing. This is when the lifestrategy comes good, doesn’t require any discipline on my part.

  • 39 Stephen Francis September 14, 2022, 3:39 pm

    The Gordon Equation is used to estimate expected real return. A real return is the return net of inflation so why, in your estimate, are you deducting inflation from this figure?

  • 40 Seeking Fire September 14, 2022, 5:16 pm

    The Rhino – I don’t think it’s active nous – I hadn’t really checked 1yr rates recently. You can tie your money up for 3.3% in cash now but with an £85k limit and tax there are disadvantages, which just make 1 yr gilts I think more attractive assuming you are locked up for a year. Cash or 1 yr gilts aren’t much different from each other really. Presumably you are in intermediate / long bonds, which most people would say are a sensible place to have some allocation too and very different to one year bonds. Presumably you’ve also got some cash etc. Don’t be too hard on yourself. Today’s environment is tough compared to the previous ten years when most assets just went up.

  • 41 Peter September 15, 2022, 12:37 pm

    I am still in accumulation phase. Higher tax payer, which means I need to pay tax for any interest earned in saving accounts if it is over £500.
    Does anyone know if I can get this tax back in a form of tax relief by contributing to my SIPP?

  • 42 JBL September 15, 2022, 2:20 pm

    You cant get tax relief in respect of savings interest, as it doesn’t count as ‘relevant UK earnings’ under the pensions tax legislation – that’s my understanding at least (see –

    Interesting discussion around investment returns. I have a sum in a pensions with profits fund (kind of forgotten about for a long time and left to build up). While it hasn’t matched investment growth over the last decade or so (only guaranteed to go up 4%pa), I’m thinking of leaving it where it is given current uncertainty – and growth is tax free of course. I tend to be risk averse at the best of times and expect others might be more confident about investing in other funds and seek more growth. Im just hoping inflation is tamed In the next year or two.

  • 43 Stephen Francis September 15, 2022, 3:47 pm

    Depending on your income and pension allowances, a contribution to your SIPP sufficient to take you below the higher rate threshold would also increase your savings allowance from £500 to £1000.

    In a similar manner, if you have taxable income over £100,000 you lose £1 of your personal allowance for every £2 over this level i.e. a tax rate of effectively 60%. A SIPP contribution to bring taxable income below £100,000 avoids this loss of PA.

  • 44 The Accumulator September 15, 2022, 5:26 pm

    @ Stephen Francis – I added inflation on to my Gordon Equation calculations to create a nominal return for the comparison table. I’d rather not have to do this but the other sources only provided nominal returns so I did this too for consistency sake.

    Hence I deducted the inflation again to get a real expected return for the portfolio example.

    It would be a lot easier if everyone just dealt in real returns.

  • 45 Peter September 15, 2022, 6:01 pm

    Thank you all for replying to my question. @Stephen Francis so if I understood it correctly, it is no brainer in my circumstances, to contribute slightly more of my income into SIPP to escape higher tax bracket. And this way gain extra £500 allowance on savings interest.

  • 46 bloodonthestreets September 15, 2022, 11:25 pm

    Interesting as a technical exercise. However, when looking at the latest yield curves for 10 year bonds, it has gone up from 2.01% to 3.16% in a month. What’s to say it’s not going to be 4% next month, 5% the next. This is the problem I have with yield curves. All they show is what we know at this moment in time. As a prediction of what rates will actually be, as the data itself shows, they are more or less useless

  • 47 The Accumulator September 16, 2022, 9:02 am

    @ bloodonthestreets – I know what you’re saying but the correlation between current yield and 10-year return is reasonable. It’s fair to say that the yield could hit 4% then 5% but it could fall too. Over time these gyrations can smooth out. I’m certainly not claiming any of this means we know the future. At best expected return gives us a large landing zone to parachute into but, of course, we can be easily blown far off target.

    @ Peter – yes. I personally got to FI far faster by investing in a SIPP and benefitting from the generous tax reliefs. It would have been much harder with an ISA. I can’t access the SIPP yet so the bulk of my wealth is still out of reach. But I’ll get there soon enough and have a cash bridge to tide me over in the meantime.


  • 48 The Investor September 16, 2022, 9:42 am

    @bloodonthestreets — Hi there. 🙂

    You write:

    All they show is what we know at this moment in time. As a prediction of what rates will actually be, as the data itself shows, they are more or less useless

    Looking at the 10-year bonds’s yield to maturity (YTM) isn’t about predicting where rates will be next year. It’s about expected returns for that bond from here.

    As @TA says, rates will fluctuate. But the annual return of that bond over ten years will be very close to that starting YTM.

    That’s because this particular exercise isn’t about forecasting future rates, it’s maths about the combined return from interest income and the capital return at the end of the ten years. 🙂

    Now this only tells us about a ten-year bond bought and held until it matures. If that was the only bond you owned, no problem. However as time moves on, bonds will be priced differently, with different yields to maturity, as influenced by developments in rates / inflation. Also bonds of different lifespans will have different yields to maturity (as per the yield curve, as you say). And most of us own bond funds.

    All of this does transmogrify the shining maths of a single bond’s return back into the lumpen lead of rough forecasts for expected returns. But like all this alchemy, we have to work with what we’ve got – and what it reasonably can and cannot tell us. 🙂

  • 49 Al Cam September 16, 2022, 1:04 pm

    @Naeclue (#36):
    Even more off-topic; are you familiar with Ed Thorps work on perpetual endowments, see e.g. https://www.aqr.com › AQR › Insights › Interviews
    and search for “perpetual”?

  • 50 SlightlyConfused September 16, 2022, 2:17 pm

    “What happened? Well, the ten-year annualised real returns were actually:

    Global equities: 6%
    UK government bonds: -1.5%
    A 60:40 portfolio returned 5.4% annualised. ”

    Isn’t that 3% ?

  • 51 The Accumulator September 18, 2022, 11:43 am

    @ SlightlyConfused: 5.4% is correct but I should have recorded global equities real return as 10%.

    A 60:40 portfolio’s weighted average is then:
    Global equities: 6%
    UK gov bonds: -0.6%
    Portfolio’s real return = 5.4%

    That’s where the mistyped 6% came from in the original copy. My mistake! Have corrected. Thank you for pointing it out. Glad someone is on the ball 🙂

  • 52 Peter September 18, 2022, 8:14 pm

    @The Accumulator, thanks for the link and reply. I use ISA for the pre SIPP bridge rather than cash. This is because I still have 10 years before I retire. So most of my cash goes to ISA rather than SIPP. This is to allow it to compound in ISA as soon as possible. I will be able to access SIPP in 20 years. So I am not contributing to much there yet. There is still plenty time to add money there. But as in my previous post, I might contribute a bit more to SIPP to take me below higher tax payer threshold. So this way I don’t need to worry about the tax on my cash savings earned interest as the allowance increases to £1000 pa (from £500 pa).

    Saying all that I will gladly read article from the link. Maybe I will learn/change my mind about what to invest in more in my circumstances SIPP or ISA.

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