Taxbriefs Commentary Library

Understanding and explaining the lessons of past performance

Danby Bloch, 15 Jun 2012


Past performance may not be a reliable guide to the future – but it is basically the only guide we have. So when explaining to clients how different asset classes can perform, it is essential to be able to show them a wide range of periods in which asset classes have performed in a variety of very different ways.

Just looking at the last 10 or even 20 years can be inadequate. And this is why it makes sense to use investment histories that go back over far longer periods. For example, the Barclays Gilt-Equity study that extends back in some detail over a period since the Second WorldWar, is outstanding. A summary of the data is to be found in the invaluable Taxbriefs Professional Adviser’s Factfile along with many other useful items of information.

You can see at a glance how gilts have performed really well in the last two decades, in a period when interest rates have declined and so has the rate of inflation. Likewise, you can see how equities rose in the 90s, but flat-lined or worse in the first dozen years of this century. You can also discern what a dismal investment gilts were in most of the first three decades since the war, when inflation and interest rates were on a rising trend.

With interest rates at what some commentators have characterised as an all time low (going back centuries), we might well be at the equivalent of 1945, the era of cheap money. If that is the case, clients should understand how gilts at this time might be a highly risky choice. Of course, they might persist in their current trend – but the big risk is that they won’t.

Past performance data is useful, but advisers should use it with care and not depend on immediate past performance to help their clients understand what might happen.


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Danby Bloch

Editorial Director, Taxbriefs

Danby Bloch is the editorial director of Taxbriefs, chairman of city-based IFAs, Helm Godfrey and director of Nucleus, an independent wrap provider.

Over a period of more than 40 years, Danby has established himself as one of the industry's leading thinkers and  is a respected author, lecturer and trainer on tax and financial planning.




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