Low interest rates on savings

[bimble]

kabbes i dont understand all of that but i think you've just saved me from doing something a bit stupid with some of this money, for which i'm grateful. Just emailed him to say no and sorry for wasting his time with my indecsion.

eta the bit about he's offering 8% to me because he cant get any bank to lend him the money is actually all i needed to understand so yeah.

 

[BristolEcho]

I see some bank interest savings are Topping out at about 0.65 percent now for easy access which unfortunately I need right now. I'm really not sure it's even worth the effort for about £13 over the space of the year.

 

[DownwardDog]

His “guaranteed” return, even if it is “guaranteed” based on his contractual obligations (because most of them have get-outs), is only guaranteed if his company continues to exist. In reality, you are exposed to the credit risk of his company going bust.

These kind of investments are a lot like buying a bond. You get a fixed return and you are exposed to credit risk. What you have to ask yourself is whether 8% is a good return on a bond with this kind of credit risk. It rarely is. His company would be equivalent to something like a CCC or lower, I would have thought — junk bond status. If you went to the bond market, you would probably expect double-digit returns for that kind of risk.

ETA: I’m a little out of date. CCC yields in the US (which are easier to look up) are currently 7.19%. But a year ago they were 17.86%. The long term average is 14.42%.

US High Yield CCC Effective Yield Market Daily Analysis: Bank of America Merrill Lynch | YCharts

In depth view into US High Yield CCC Effective Yield including historical data from 1996 to 2024, charts and stats.

ycharts.com

Such schemes and the inevitable destitution of those who choose to participate in them are a staple of the "American Greed" program on CNBC.

 

[bimble]

Actually feel more nervous than happy, about this money that's probably coming today, just because i havent yet decided what to do with it. Which is completely ridiculous of me.

 

[teuchter]

Early last month i put a sort of trial token money into one of those vanguard accounts, the 'Global Balanced Fund' one. I just had a look and see that i've lost money, not much at all, 0.05% down, so haven't lost not enough to buy a kitkat but - today is the day that i should get my lump sum (proper money) hitting my current account and looking at the loss makes me wonder if maybe I need to think more carefully about what my attitude to risk really is.
But then again if i put it all in a bank or in a box under the bed i'd 'lose money' that way too just less obviously, right?

If it makes you feel better, I did the same prompted by this thread but towards the end of last month and I am currently 4.04% down

I'm not panicking though, because I can look at the graph for the last however many years and it has lots of bumps up and down of this magnitude or more and yet the overall trend is in the right direction.

It does mean that it turns out I would have been better to procrastinate for approximately 2 weeks longer before opening it and I hold everyone on this thread responsible for the consequent relative loss.

 

[kabbes]

If it makes you feel better, I did the same prompted by this thread but towards the end of last month and I am currently 4.04% down

I'm not panicking though, because I can look at the graph for the last however many years and it has lots of bumps up and down of this magnitude or more and yet the overall trend is in the right direction.

It does mean that it turns out I would have been better to procrastinate for approximately 2 weeks longer before opening it and I hold everyone on this thread responsible for the consequent relative loss.

I have thought of you during these last two weeks, and the fact that the timing was unfortunate. The only crumb of comfort I can offer you is that over that period, my fate has paralleled yours.

It's impossible to time these things and I fully expect that any day I try to invest will be guaranteed to represent a mini-peak, in which I would have been better off investing either one week earlier or one week later. What can you do? Over time, it's better to do it than not do it.

 

[teuchter]

I have thought of you during these last two weeks, and the fact that the timing was unfortunate. The only crumb of comfort I can offer you is that over that period, my fate has paralleled yours.

It's impossible to time these things and I fully expect that any day I try to invest will be guaranteed to represent a mini-peak, in which I would have been better off investing either one week earlier or one week later. What can you do? Over time, it's better to do it than not do it.

I'll wait until it gets back to where it started, and then pretend I'd procrastinated longer and opened it at that point, and then hopefully not watch it crash again.

 

[Winot]

It’s best not to look.

 

[bimble]

It’s best not to look.

Exactly. So these things are better for people who can quite happily not look. I think i'm one of them, in that i only looked today for the first time, six weeks after opening the account, but not sure if that's really true, if I were to put everything in instead of the token bit.

 

[bimble]

I just did this little attitude to risk questionnaire and i come out quite high risk, medium-high, today anyway.
i think if i did it another day would get a different result though, maybe. And question one stumped me.


eta you can do it here Assess your attitude to risk | Investments | Standard Life

 

[muscovyduck]

Exactly. So these things are better for people who can quite happily not look. I think i'm one of them, in that i only looked today for the first time, six weeks after opening the account, but not sure if that's really true, if I were to put everything in instead of the token bit.

I'm someone who 'looks' but I'm not someone who tries to move it, ime over time you get used to the idea that even when it goes up and down it's still just sort of gradually going up

 

[kabbes]

I just did this little attitude to risk questionnaire and i come out quite high risk, medium-high, today anyway.
i think if i did it another day would get a different result though, maybe. And question one stumped me.
View attachment 269291

These things are kind of useful but the problem I have with them is that they take for granted what is meant by the word "risk", reifying it into something that has meaning without context. In reality, "risk" only exists in relation to something. To know whether something is "risky", you have to know what it is that you are risking.

Pensions are a great example of this problem. The risk associated with pension investment is, in reality, the risk that you don't have sufficient funds at retirement to be able to live off. Investments are therefore "risky" to the extent that they expose you to this risk. On this basis, cash is about as risky an investment as you can get, as it will almost guarantee that you won't have sufficient funds (unless you have the ability to save enough without investment return, which most people do not). Despite this, you will repeatedly see pension funds classify cash investments as "low risk" or even "risk-free". That's because they are using a different definition of risk -- one that is about volatility of value over a single year.

Question 2 on your list is, "I prefer my money to be safe from risk." Well, who doesn't "prefer" that? But what are the options and what is your definition of risk? The risk that in 10 years' time, your investments will have been left behind by inflation? The risk that you wanted to be able to buy a car that you need to earn 5% per year in order to save for? Or the risk that there is daily fluctation in value?

See the problem here? You can't just talk about "risk score" and "risk level" and "high risk" without context.

 

[nick]

I've got a bloke who keeps calling me, who is looking for people to invest in his "Guaranteed return of 8% per annum " property company in essex. That is not a clever thing to agree to do is it or is it. he has made glossy leaflets and everything.

Bimble - whilst Kabbes has given the detailed and correct explanation why caution needs to be exercised on this one, The TLDR version is:
"....who keeps calling me," No one ever in the history of time has been phoned up out of the blue and been offered something that is a good idea


But I guess you already knew this

 

[nick]

If it helps to put the 0.05% monthly loss (+ inflation impact) in perspective:
My Bitcoin investment (gamble) went from something like £190 to £120 overnight yesterday. Still, it makes a nice change from lottery tickets

 

[bimble]

These things are kind of useful but the problem I have with them is that they take for granted what is meant by the word "risk", reifying it into something that has meaning without context. In reality, "risk" only exists in relation to something. To know whether something is "risky", you have to know what it is that you are risking.

Pensions are a great example of this problem. The risk associated with pension investment is, in reality, the risk that you don't have sufficient funds at retirement to be able to live off. Investments are therefore "risky" to the extent that they expose you to this risk. On this basis, cash is about as risky an investment as you can get, as it will almost guarantee that you won't have sufficient funds (unless you have the ability to save enough without investment return, which most people do not). Despite this, you will repeatedly see pension funds classify cash investments as "low risk" or even "risk-free". That's because they are using a different definition of risk -- one that is about volatility of value over a single year.

Question 2 on your list is, "I prefer my money to be safe from risk." Well, who doesn't "prefer" that? But what are the options and what is your definition of risk? The risk that in 10 years' time, your investments will have been left behind by inflation? The risk that you wanted to be able to buy a car that you need to earn 5% per year in order to save for? Or the risk that there is daily fluctation in value?

See the problem here? You can't just talk about "risk score" and "risk level" and "high risk" without context.

Absolutely. Thinking about it, as well as everything you're saying it's got to be very changeable depending on your circumstances at the time of being asked these question, so for instance I probably come out with high tolerance for risk today because I feel very safe in my house, feel like whatever i do with this money that's coming, even if i lost it all, i would still be able to safely go on living here in my home, if that wasn't the case, which it wasn't last year, it would all feel very different.

 

[bimble]

If it helps to put the 0.05% monthly loss (+ inflation impact) in perspective:
My Bitcoin investment (gamble) went from something like £190 to £120 overnight yesterday. Still, it makes a nice change from lottery tickets

Yep. I think the reason i get 'fearless gambler' score on that risk test is because i - foolishly imo - did bitcoin a few years ago (in and out within a year or so). never bought a lottery ticket in my life though, i'm not that wildly optimistic.

 

[kabbes]

Absolutely. Thinking about it, as well as everything you're saying it's got to be very changeable depending on your circumstances at the time of being asked these question, so for instance I probably come out with high tolerance for risk today because I feel very safe in my house, feel like whatever i do with this money that's coming, even if i lost it all, i would still be able to safely go on living here in my home, if that wasn't the case, which it wasn't last year, it would all feel very different.

That's also a great point. The questionnaire makes the assumption that people have stable, fixed characteristics and attitudes that are context-free. It further assumes that these stable, fixed attitudes can be measured and used to construct a predictive model of their behaviour. All these assumptions are highly dubious. In reality, people respond to context, including cultural context, financial context, social context etc etc. They have memories of recent events that give them availability bias, they experience traumatic events that change their internalised scripts, they are exposed to new events that change their views.

 

[nick]

Anyone (Kabbes?) heard of an application called Voyant? Voyant Home

At the initial conversation with some prospective advisors they plugged income, savings, costs, desires, assumed returns etc into the system and it was able to give a useful view on how much risk needed to adopt to meet goals (retirement timing etc etc).
Basically it is a huge cashflow model with some pretty graphics on it - but appeared really slick for scenario planning - ie what if we retire at 60, or sell the house, or spend more on holidays, more charitable giving etc

There will (of course) be a charge for revisiting the initial model and refining the details - but I feel worth it for the (potentially illusory) comfort it gives.

Or are the experts on here aware of flaws in it (apart from the basic garbage in / garbage out considerations)?

 

[bimble]

8% man has sent a long email urging me not to miss out on this opportunity. Urban75: not entirely a waste of time.

 

[nick]

I remember when I was getting close to 8% from Icesave on a tax free ISA.
Happy days
Then 14 Sept 2008 happened
Luckily it was covered by FSCS - so I got a cheque of the lot (less maybe 6 weeks interest) from the government, which was nice

Mr 8% probably isn't covered by the FSCS .

FSCS is a good thing and worth being aware of

 

[platinumsage]

If it makes you feel better, I did the same prompted by this thread but towards the end of last month and I am currently 4.04% down

I'm not panicking though, because I can look at the graph for the last however many years and it has lots of bumps up and down of this magnitude or more and yet the overall trend is in the right direction.

It does mean that it turns out I would have been better to procrastinate for approximately 2 weeks longer before opening it and I hold everyone on this thread responsible for the consequent relative loss.

It's always good to look at graphs, in this case it shows why people say you should invest for 5+ years:

e.g. OMG, I bought at an all-time high earlier this month:





Zooming out it's hardly a bump:

 

[bimble]

I remember when I was getting close to 8% from Icesave on a tax free ISA.
Happy days
Then 14 Sept 2008 happened
Luckily it was covered by FSCS - so I got a cheque of the lot (less maybe 6 weeks interest) from the government, which was nice

Mr 8% probably isn't covered by the FSCS .

FSCS is a good thing and worth being aware of

yeah, of course he's not. His email just now says
'From a risk point of view, firstly your investment is protected by the floating charge of the assets meaning they are not only protected by the current assets we have, they are also protected by all assets as the company grows, so your initial capital is protected completely.'
that last bit is just really not true, in a way that even i can see.

 

[pseudonarcissus]

These things are kind of useful but the problem I have with them is that they take for granted what is meant by the word "risk", reifying it into something that has meaning without context. In reality, "risk" only exists in relation to something. To know whether something is "risky", you have to know what it is that you are risking.

Pensions are a great example of this problem. The risk associated with pension investment is, in reality, the risk that you don't have sufficient funds at retirement to be able to live off. Investments are therefore "risky" to the extent that they expose you to this risk. On this basis, cash is about as risky an investment as you can get, as it will almost guarantee that you won't have sufficient funds (unless you have the ability to save enough without investment return, which most people do not). Despite this, you will repeatedly see pension funds classify cash investments as "low risk" or even "risk-free". That's because they are using a different definition of risk -- one that is about volatility of value over a single year.

Question 2 on your list is, "I prefer my money to be safe from risk." Well, who doesn't "prefer" that? But what are the options and what is your definition of risk? The risk that in 10 years' time, your investments will have been left behind by inflation? The risk that you wanted to be able to buy a car that you need to earn 5% per year in order to save for? Or the risk that there is daily fluctation in value?

See the problem here? You can't just talk about "risk score" and "risk level" and "high risk" without context.

I think it's worth pointing out there is a difference between risk and volatility.

A lot of us are worried about volatility...that the market goes up two steps, then down one step, but historically the trend has been up. For those without a crystal ball, there are probably advantages in investing that 1200 quid bonus at 100 a month (cost averaging)...that way sometimes you buy on the good (expensive days) for the market, and sometimes on the bad (cheap) days. Sod's law said that if I ever had a million to invest, there would be a "market correction" (fall in share prices) the next day.

It's wise to keep some savings in savings with low volatility and risk (cash ISA, savings account) so that you can deal with the roof blowing off just when the stock market has fallen 20% because of Covid.

 

[pseudonarcissus]

It's always good to look at graphs, in this case it shows why people say you should invest for 5+ years:

OMG, I bought at an all-time high earlier this month:

View attachment 269296



Zooming out it's hardly a bump:



View attachment 269297

Also, that's a global fund with lots of American shares and it's priced in USD. The pound has been going up recently.

$100 was £71.74 on 7th May is now worth £70.62.



I would hazard a guess that if you switched to USD pricing you'd turn the frown upside down.

 

[platinumsage]

Also, that's a global fund with lots of American shares and it's priced in USD. The pound has been going up recently.

$100 was £71.74 on 7th May is now worth £70.62.


View attachment 269299
I would hazard a guess that if you switched to USD pricing you'd turn the frown upside down.

This is not relevant to my point, but it would look the same because the pricing currency is irrelevant - it's the value of the underlying assets that matters, which are company shares denominated in the currencies of the various countries where they are listed:



You'd would only expect a different graph if the fund was hedged, i.e. complex strategies employed to make it act as if all the companies in the fund were priced in the local currency e.g. GBP. This generally detracts from long-term performance.

 

[Hollis]

I think it's worth pointing out there is a difference between risk and volatility.

A lot of us are worried about volatility...that the market goes up two steps, then down one step, but historically the trend has been up. For those without a crystal ball, there are probably advantages in investing that 1200 quid bonus at 100 a month (cost averaging)...that way sometimes you buy on the good (expensive days) for the market, and sometimes on the bad (cheap) days. Sod's law said that if I ever had a million to invest, there would be a "market correction" (fall in share prices) the next day.

It's wise to keep some savings in savings with low volatility and risk (cash ISA, savings account) so that you can deal with the roof blowing off just when the stock market has fallen 20% because of Covid.

Completely agree re volatility - if you're sticking something in your pension fund for 20 years time, then you can handle some degree of volatility..

The thing I don't get is the empahsis still on shifting into bonds as you get near retirement. I could understand it when the idea was you bought an annuity at say 65 years. But these days you're as likely to do drawdown over a number of years. In which case it makes sense to keep a higher amount in equities for growth. - Especially also as people are living longer so you can expect 20+ years in retirement..

As an aside, I like that in pension planning they talk of 'longevity risk' - i.e. that you can live too long. From a planning perspective it would be alot easier if you knew when you were going to croak it.

 

[20Bees]

When I took redundancy three years ago I transferred the tiny DC pension into a SIPP with Hargreaves Lansdown, rounded it up with a bit of the redundancy payment, and left it sitting as cash with HL through stupid procrastination and even more stupidly feeling that <£40k was small fry, a silly amount to consider investing. I’ve never saved, never earned much and keep my head above water on very little. But the lightbulb moment did happen and six weeks ago I decided to dip a toe in the vast sea of investing, telling HL to put a few £k into Fundsmith and a FTSE 250 fund. And have been dithering over how much to leave with them in cash, and where to invest the rest - VLS (60?), a Global tracker, maybe a specific Asia fund or a FTSE 100, though maybe that’s silly when I have a small amount in a 250.
So in the first couple of weeks the Fundsmith one in particular went up up up, and last week they both went down down down, it’s a very small investment and I still have another DB pension (and state pension) to come, and it doesn’t terrify me if this keeps going down for a while.
I think having 24/7 access online to its performance has a huge downside for a complete numpty like me. Over 30 years ago my ex and I started a Unit Trust saving scheme with £250 and it was going to be £25/month ongoing, but for whatever reason we only did about three more months. Every year I get an annual paper statement and it’s mostly grown, slowly, to about £800 now, but only seeing that yearly statement is so easy compared to being exposed to daily, weekly, monthly ups and downs!

 

[pseudonarcissus]

Completely agree re volatility - if you're sticking something in your pension fund for 20 years time, then you can handle some degree of volatility..

The thing I don't get is the empahsis still on shifting into bonds as you get near retirement. I could understand it when the idea was you bought an annuity at say 65 years. But these days you're as likely to do drawdown over a number of years. In which case it makes sense to keep a higher amount in equities for growth. - Especially also as people are living longer so you can expect 20+ years in retirement..

As an aside, I like that in pension planning they talk of 'longevity risk' - i.e. that you can live too long. From a planning perspective it would be alot easier if you knew when you were going to croak it.

When I took redundancy three years ago I transferred the tiny DC pension into a SIPP with Hargreaves Lansdown, rounded it up with a bit of the redundancy payment, and left it sitting as cash with HL through stupid procrastination and even more stupidly feeling that <£40k was small fry....
So in the first couple of weeks the Fundsmith one in particular went up up up, and last week they both went down down down, it’s a very small investment and I still have another DB pension (and state pension) to come, and it doesn’t terrify me if this keeps going down for a while.

Quite agree with the move to bonds. I think it's partly historical from when rates were greater than inflation.
20Bees has highlights that your attitude to volatility is partly determined by the size of the fund....smaller investors are probably much less able to tolerate volatility.
Diversity in income sources with regard to volatility is good, particularly when there is less ability to reduce spending if the market is bad. If you have a £1 million fund and need £25k a year to live on, you don't need to worry too much. If you have £1/2 million and need £25k, volatility and longevity risk are prime concerns. (Hopefully the sate pension will cover a chunk of that)
Ideally your fixed costs would be covered by low volatility income and the discretionary spending by higher risk investments, but most of us probably won't get to the point of having enough of the former.

Beyond the 4% Rule is an interesting book; the conclusion is 80/20 equities/bonds in retirement is best if he goes back and runs Monte Carlo simulations for each retiring cohort since 1905 or something. Market performance and inflation in the first few years of retirement are the most important factors in not running out of money, and of course, you can't control these. Folk that retired in 1969 got the short end of a shitty stick.

 

[Idaho]

Question 2 on your list is, "I prefer my money to be safe from risk." Well, who doesn't "prefer" that?

I did one of these when I changed pension provider. One of the questions was "will it negatively affect your retirement if you lost all your pension?" ... Sigh...

My risk tolerance is somewhere close to the degenerate gambler end of the spectrum, but I of course answered strongly agree on this. Meaningless.

 

[bimble]

So vanguard is registered with the FCA but i cant figure out what that actually means, it can't be the same as with a bank, its not like up to 85k the government will (somehow) give you your money back if the firm implodes is it?

Not sure what i'm asking for here but something like confirmation that there is zero guarantee that i'll get any of the cash back, just so I can do this with eyes open ?