25 year return. Your thoughts please.

[Bubblegun]

I was wondering what everyones thoughts are on this final amount payed out by standard life today.
First some details. The brits will probably know this product very well.
For others
https://en.wikipedia.org/wiki/Endowment_mortgage
But everyones thoughts would be appreciated, as I am a little disappointed especially as we keep talking about pound cost averaging.

Target 41,000 pounds
Monthly investment 75 Pounds for 25 years.
Total invested. 22,500 pounds.
Total return. 33257:00pounds.(today)

Compensation 3000 pounds.(18 years ago ish).
Real return is. 36,257 pounds

The company standard life explained that the compound growth was 6.5% and allowing for tax, expenses etc etc the Net return was 5.5% per annum.

In fact I asked for a breakdown of the annual figures and I received these figures.

Points they said for the terrible performance was
1) the dot com bubble burst 2000/2001
2 the housing crash of 2008.

This was a managed fund.Set up when this was probably the norm for most people during the mis-selling period, and before I knew of passive funds and probably wasn't available for a mortgage.
Anyway, I was wondering if I am jumping the gun a bit here in being disappointed, and wondering what your thoughts are on this real life 25 year investment in a mortgage endowment. Thankfully I switched my mortgage to repayment mortgage.

( these products are now basically defunct, as they didn't do what they were supposed to do, and that was pay off the mortgage and leave some cash as extra).

The extra 75 pounds now per month can be used to drip into my Emaxi.

Thanks in advance.

[EmaxisSlim Cultist]

I would say do not be too disappointed, it could have been worse. You saw 50% growth in 25 years.

An FTSE100 index fund would have seen, what around %150? But, how accessible were these products available to you back then?

Are these black box policies? Without seeing the portfolio, it is hard to know if there was uncompensated risk?

[TBS]

I would say do not be too disappointed, it could have been worse. You saw 50% growth in 25 years.

An FTSE100 index fund would have seen, what around %150? But, how accessible were these products available to you back then?

Yes I'd echo this. Presumably the property is worth much more than 41,000 pounds now and dwarfs the ~5,000 pound shortfall?

FWIW 75 pounds invested monthly into MSCI All World over the past 25 years (22,500 total) would be worth about 65,000 pounds now without factoring in taxes. So there's a difference to standard life but in the grand scheme of things it wasn't a really bad investment.

[Bubblegun]

I would say do not be too disappointed, it could have been worse. You saw 50% growth in 25 years.

An FTSE100 index fund would have seen, what around %150? But, how accessible were these products available to you back then?

Are these black box policies? Without seeing the portfolio, it is hard to know if there was uncompensated risk?

Thanks for that Emaxi Cultist. I suppose I shouldn't be too disappointed. Atleast I didn't loose money, which is the main thing over the 25 year period.
I used to read alot about the financial news, watch financial TV shows on the BBC years ago, and tracker funds were never on anyones radar, or certainly not at any meaning full level to influence Joe public.
I asked specifically where the money was invested, the said FTSE 100, bonds/guilts, real estate and they mentioned interest rates and inflation being extremely low.

TBS
Presumably the property is worth much more than 41,000 pounds now and dwarfs the ~5,000 pound shortfall?

FWIW 75 pounds invested monthly into MSCI All World over the past 25 years (22,500 total) would be worth about 65,000 pounds now without factoring in taxes. So there's a difference to standard life but in the grand scheme of things it wasn't a really bad investment.

Thanks for your words of encouragement.
Yes, your absolutely right. The property has increased in value, and now its being rented out, so I suppose when I think about it, the tenant is giving me ( indirectly) 200 pounds a month to pay of the mortgage.

Sometimes, I think when I look at all the articles about all those people making 100s of thousands, retiring in glory, it feels like there is a mountain to climb, and instead of it being like Mt Fuji, it's more like Everest.

My next problem will be bringing the money over to Japan, and to be honest, if Japan decides to tax this,( and it was supposed to be a tax free saving financial product int he UK), it would really wipe out these savings beating inflation. 5.5% total return.- UK anual inflation rate 2.5%= 3%. Then if I had to pay Japanese tax, this could literely wipe out the whole point of any saving.

[Tkydon]

You can use the XIRR (Extended Internal Rate of Return) function in Excel to calculate the actual Average annual Rate of Return for the Cashflows that would produce the resulting negative number on the bottom (+ve numbers are payments in, and -ve numbers are withdrawals out.)

List up all the payments:


01/25/97 75 =XIRR(<Range of the Cashflows>,<Range of the Dates>) x 100% = 4.26077968 %
02/25/97 75
03/25/97 75
04/25/97 75
05/25/97 75
06/25/97 75
...
12/30/03 -3000 This was your 3000 deduction...
...
10/25/21 75
11/25/21 75
12/25/21 75
12/30/21 -33257 This is the final amount received.



Investing 75 per month for 25 years, withdrawing 3,000 after 7 years, and receiving 33,257 at the end, yields an actual Average annual Rate of Return of 4.25% after all costs.
I don't know what you mean by 'Compensation', but if you had let the 3,000 ride at 4.25%, it would have grown to 6,357 if compounded at the same rate, so your total would have been 39,615

That's 75 compounded for 300 months, 75 compounded for 299 months, 75 compounded for 298 months, and so on.
Over a long period, a return of 5-7% would be what one might expect before costs, so the return is probably quite respectable.

You could do the equivalent excel spreadsheet for each 75 quid divided by the S&P on that date minus transaction costs.
You would also have to minus a number of units each year for the management fee, say 2% of the units
Sum up the total number of Units Purchased, and divide by the S&P on the end date as the minus number at the bottom, and the XIRR will calculate the equivalent Average annual Rate of Return for the S&P fund...

Incidentally, by comparison, the annualised return of the eMAXIS SLIM 先進国債券インデックス over the last 3 years was 4.19% and since inception was 3.61%...

https://www.nikkei.com/nkd/fund/?fcode=0331A172

[Bubblegun]

You can use the XIRR (Extended Internal Rate of Return) function in Excel to calculate the actual Average annual Rate of Return for the Cashflows that would produce the resulting negative number on the bottom (+ve numbers are payments in, and -ve numbers are withdrawals out.)

List up all the payments:


01/25/97 75 =XIRR(<Range of the Cashflows>,<Range of the Dates>) x 100% = 4.26077968 %
02/25/97 75
03/25/97 75
04/25/97 75
05/25/97 75
06/25/97 75
...
12/30/03 -3000 This was your 3000 deduction...
...
10/25/21 75
11/25/21 75
12/25/21 75
12/30/21 -33257 This is the final amount received.



Investing 75 per month for 25 years, withdrawing 3,000 after 7 years, and receiving 33,257 at the end, yields an actual Average annual Rate of Return of 4.25% after all costs.
I don't know what you mean by 'Compensation', but if you had let the 3,000 ride at 4.25%, it would have grown to 6,357 if compounded at the same rate, so your total would have been 39,615

That's 75 compounded for 300 months, 75 compounded for 299 months, 75 compounded for 298 months, and so on.
Over a long period, a return of 5-7% would be what one might expect before costs, so the return is probably quite respectable.

You could do the equivalent excel spreadsheet for each 75 quid divided by the S&P on that date minus transaction costs.
You would also have to minus a number of units each year for the management fee, say 2% of the units
Sum up the total number of Units Purchased, and divide by the S&P on the end date as the minus number at the bottom, and the XIRR will calculate the equivalent Average annual Rate of Return for the S&P fund...

Incidentally, by comparison, the annualised return of the eMAXIS SLIM 先進国債券インデックス over the last 3 years was 4.19% and since inception was 3.61%...

https://www.nikkei.com/nkd/fund/?fcode=0331A172

First and foremost, thank you for that and a Happy New Year.

WoW, I wish they had taught me how to do that at school. Although when I went to school, we had real floppy discs, and the girls were still learning secretarial studies.lol

The compensation of 3000 pounds was due to the company lying and mis-leading customers.
I specifically mentioned the high risk of this financial product never ever reaching its goals of paying off a mortgage and because the salesman got kickbacks( commission) from standard life, he basically reassured us that it was all BS.Even though I wanted to make sure the mortgage was payed off after 25 years, he steered us towards the endowment product.
As I tell my kids,(boys) salesman and women, are their to sell something that makes them money, and that may cost us some money. So never sign on the day, and listen to the little voice. LOL

Those numbers you crunched I really appreciate as I suppose it doesn't make things look too bad, and some of the others above remind me there was a positive return.

Thanks. I just need to figure out what to do with it again.

[Tkydon]

Yes, many people I know got stung by the Endowment Mortgage debacle, and ended up having to refinance at the end of the 25 years with another 10 Year Repayment Mortgage, before it was completely paid off, so ended up being a 35 Year Mortgage...

The estimate of future returns on the investments over the subsequent 25 years was far too optimistic, and so the amount invested was far too low to achieve the full value of the mortgage principle in the time frame. This allowed the advisors to provide a higher Principle Loan, which in turn fueled the bubble...

This should be a warning to everyone trying to calculate how much they will need for retirement, and how long it will take to get there. Be Pessimistic, and be Pleasently Surprised. Don't be too optimistic, and be shocked.

A classic case of mis-selling in the world of deregulated UK Financial Advisory Industry in the 1980s, which fueled the UK housing bubble caused by the 'Market Synchronising Event' of the repeal of Dual MIRAS on mortgages, which forced many first time buyers into the market, artificially pushing up demand and house prices.

The subsequent total fall-off in demand (no more first-time buyers, and hence no opportunity to trade up at a nice profit) after the Dual MIRAS Cut-Off, caused prices to fall, and the fact that many buyers had over-extended themselves and could no longer afford their payments, sent the UK housing market into a downward spiral (1990-1992). Many borrowers then just posted the keys back to the lenders and walked away, after stripping the properties of anything they could carry away (pipes, light fittings...)

MIRAS was the UK Mortgage Interest Tax Deduction (Mortgage Interest Relief At Source), and with very high interest rates was a considerable benefit, doubled by Dual MIRAS; if two unmarried people purchased a property together, they could both claim the full Interest Tax Deduction on the full value of the Mortgage, until they couldn't...

A classic example of how excess liquidity and changing government or central bank policy can have dire effects on the market that really impact the market, but can provide buying opportunities in the wake of the aftermath of the 'Market Synchronising Event'...