Investors brought low in between FTSE highs

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Investors brought low in between FTSE highs
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It has been a bumpy 15 years since the FTSE 100 hit an all-time closing high of 6930 on December 30, 1999 with an intra-day high of 6950.

The market finally breached those levels last week having come within 100 points of the closing high on 20 separate trading days.

Returns for investors have at times been meagre over this period. Axa Wealth’s published figures suggest that with dividends reinvested the FTSE 100 has returned 67.78 per cent over those 15 years, turning £10,000 into £16,778.

That equates to an annual return of just under 3.5 per cent – but this is before charges.

A standard tracker may have taken 0.5 per cent a year – and possibly a lot more at the beginning of the period.

Then there are the trackers that pose as active funds. Take off their management charges and some investors will have been looking at returns of less than 2 per cent a year – if they made their own investment decisions. Add on the cost of financial advice and the returns could be bleaker still.

Of course, many investors will have carefully chosen active funds that have done much better. But some will have done worse.

The tracker figures are particularly important because this is where a huge chunk of pension money is held through personal or occupational schemes.

Even with very low charges, returns on money that was already invested in December 1999 are unlikely to top 3 per cent a year.

This is a far cry from the 7 per cent they might have seen quoted at the time of investing.

The most worrying aspect is that many will not have seen their money keep pace with inflation, which has averaged around 3 per cent over the period.

These are figures the investment industry should be chewing over.

I have used a specific period from the last stock market high. Many may argue that this is unfair – and it is certainly possible to find periods where returns look excellent.

But this is a period when private investors were plunging into the stock market on the back of the technology boom.

And it is a period when they have been left increasingly to fund their own pensions with less support from employers.

The investment industry cannot control the markets (though some bank employees think otherwise) but it can control the charges – and when returns are low these have made a real difference to clients.

The investment industry cannot control the markets but it can control the charges

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Comeback kid?

Is Sir Howard Davies on your Christmas card list. No? He is not on mine either but if I were to send him one it would probably be made of teflon.

It appears Sir Howard could be the next chairman of RBS.

I do not doubt Sir Howard’s intellect. Qualifications pour from his buttresses.

But as the first chairman of the failed Financial Services Authority he set up so-called light-touch regulation. We all know where that led.

At a mortgage industry lunch he likened endowment mis-selling to a thief breaking into your house and leaving a bag of money.

Those comments showed a complete failure to grasp how rapidly falling payouts on endowment policies would leave many homeowners with mortgage shortfalls. As chairman of Phoenix Group he perhaps now understands a little more about endowments.

Then there was the episode at the London School of Economics where he resigned as director, after it was revealed funding was accepted by the institution from a charitable foundation controlled by Colonel Muammar Gaddafi’s son.

Still, some in the corridors of power think he is the man for RBS, and who am I to argue?

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Isaby too austere on pensioners

I was stunned to read comments by Jonathan Isaby, chief executive of the Taxpayers’ Alliance, stating: “It’s hard to shake the suspicion that austerity stops at 65.”

This was his critical response to David Cameron’s pledge to protect pensioners benefits.

Perhaps Mr Isaby missed the fact that higher personal allowances for pensioners have been frozen and are being phased out.

He may have failed to notice how low interest rates are forcing many to live on lower incomes while younger borrowers enjoy extraordinarily low interest rates. Or record amounts being taken in equity release.

Perhaps he thinks pensioners do not pay VAT at 20 per cent, the same as everybody else.

Maybe he has yet to learn that the retirement age is rising beyond 65 leaving people waiting for state pensions while paying National Insurance for longer.

I am all for lower taxes and benefits only being paid to those who deserve them. But means-testing pensioner benefits would be costly and would almost certainly lead to them not being claimed by many of those who need them.

Tony Hazell writes for the Daily Mail’s Money Mail Section He can be contacted at t.hazell@gmail.com