Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

This article was originally published in The Telegraph

THERE’S nothing quite like a round-number birthday to get you thinking. So, as I prepare to celebrate six decades, it’s unsurprising that I’m turning my attention to what comes next. Specifically, for the purposes of this column, what this might mean for how I manage my investments over whatever’s left on the clock.

Needless to say, I have no idea what the years ahead have in store. The past, as we are constantly reminded, is no guide to the future. But when it comes to our investments, it is all we have. Accepting that history is unlikely to repeat itself, we can at least use what’s already happened to shape our thinking about what’s yet to come.

One of the challenges with analysing past performance is knowing when to start. I’m looking forward about 20 years, but I don’t want to look back exactly that far because that takes us to a particularly favourable point in the stock market cycle. 2003 was the bottom of the post-dotcom-bubble bear market. It didn’t feel like it at the time, but it was a fantastic time to start investing.

Likewise, I’ve rejected a 15-year time period because that presents the opposite problem. It takes us back to the spring of 2008 when the storm clouds of the financial crisis were looming but markets were still close to their peak. So, my starting point instead is the beginning of 2005 when I couldn’t tell you what was going on or what investors were thinking. The only thing I remember from that year is a famous Ashes victory which is topical but not relevant.

An 18 and a half year time period makes sense looking forward, too. If I’m still around, I’ll be 78 and perhaps more interested in securing a nice secure income from what I’ve accumulated by then. When I think about my investment horizon today, 18 years feels about right.

So, what am I hoping to learn? Three key questions spring to mind when it comes to deciding how to manage my money. Where to invest? Active or passive? Funds or shares? To see what the past can tell us about those three, I’ve looked at three sets of investments. First, the benchmark indices of the key markets I might plausibly have invested in at the start of 2005. Next, some funds that I might realistically have bought. Finally, a few individual shares that I could have, and in some cases, did own in 2005.

There are two conclusions to be drawn from the geographical analysis. First, that the difference between getting it right and wrong over a long period like this is material. If you had invested £100 in a portfolio of European shares in 2005 you would have £140 today, in the UK £156 and £180 in a spread of emerging markets. Had you instead invested in Japan, your £100 would have grown to £290. In the US it would now be worth £370. If you had narrowed your focus to the tech-heavy Nasdaq index, you would have £630 today.

So, a significant dispersion of returns. How predictable would the winners and losers have been in 2005? Not very, I’d suggest. The emerging market story was consensus at the time, while Japan had been a perennial disappointment over the previous decade and a half. Scarred by the bursting of the technology bubble, investors would not necessarily have viewed Nasdaq as the one-way ticket it has proved to be. Picking geographical winners is hard over long periods. Much better to maintain a broad spread of investments.

Whether to put your trust in an active stockpicker or to opt for the simplicity of an index tracker fund is not easy either. The conclusions are skewed by the hindsight that no-one has ahead of time.

Deciding whether active managers or passive funds have the edge is made more difficult by the fact that only the better-run funds live to tell their tale. There just aren’t that many that can demonstrate performance back to 2005. The serial underperformers fade away. So, I can say that Rathbone Global Opportunities turned £100 into £750 over this period, three and a half times as much as the MSCI World index, but you’d be justified in telling me I was cherry picking. I would be.

The final question - funds or shares? - is perhaps the most interesting. Because it is at this granular level that the most dramatic ‘if only’ cases can be found. It is plausible to think that in early 2005 we were already using Amazon to buy cheap books and could, therefore, have spotted the potential of this mould-breaking company. Had we done so, we could have turned £100 into £5,900 over 18 years.

It is far less likely, however, that we would have had the grit to hold it through the ups and downs along the way. And that is another problem with backward-looking, benefit-of-hindsight analysis. It ignores the fact that we are human and invariably our own worst enemies - especially when it comes to making and keeping investments in single companies.

Even if we could stick with it, who’s to say that we would not have invested in other plausible long-term buy and hold stocks like Marks & Spencer, Barclays or Shell. They have turned £100 into £59, £29 and £130 over this period. Did WH Smith (£687) or Unilever (£360) really look so much better 18 years ago?

So, the head says global tracker; the heart says go find the next Rathbone Global Opportunities; and the magical thinking that will keep me interested for the next 20 years dangles the prospect of picking the next Amazon. Of course, I can do a bit of all three. And I suspect I will.

Five-year performance table

(%) As at 30 June

2018-2019  2019-2020 2020-2021 2021-2022 2022-2023
Rathbone Global Opportunities Fund 9.4 19.3 24.4 -17.5 17.2

Past performance is not a reliable indicator of future returns

Source: Morningstar, as at 30.6.23. Basis: bid-bid, income reinvested in GBP. The fund’s primary share class according to the IA is shown. Excludes initial charge.  

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Direct shareholdings should generally form part of a well-diversified portfolio of other investments. The Rathbone Global Opportunities Fund invests in a relatively small number of companies and so may carry more risk than funds that are more diversified. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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