Read time: 3 mins Investing

Lifting the lid on investment returns

  • No one can forecast exactly how much profit an investment will make
  • But the level of return is an important consideration for any investor
  • We look at three ways investors can judge how risky an investment may be

“How much money can I make?” is one of the first questions that anyone who is considering investing asks.

Unfortunately, that’s a question that no one can answer with absolute certainty.

You can’t predict the future, so instead you have to look for other ways to judge whether an investment could be right for you.

Let’s look at three ways to consider different types of investments with various providers.

Simulated past performance

When you’re trying to work out how an investment may perform in the future, investors will often try to look to the past.

While this may help you understand the potential risk of an investment, it’s important to remember that past performance is not a useful indicator to rely upon when making decisions on whether to invest, though it may provide some guidance on how volatile the investment has been.

As evestor is part of a new generation of investment platforms – we were founded in 2017 – we haven’t got years of historical data to share. But we do have a team of regulated financial advisers with a wealth of expertise, alongside complex tools that can analyse how our investment portfolios may have performed over the last decade. This is known as simulated past performance, which means it isn’t based on actual past data.

With evestor, whether you are investing into a Stocks & Shares ISA, a General Investment Account or a Self-Invested Personal Pension, you can put your money into three different portfolios – lowest risk, medium risk and highest risk – which contain different mixes of assets, including company shares and government bonds.

We’ve compared the simulated past performance of evestor’s portfolios with benchmark figures from the Financial Express, which is often used to judge how a portfolio has performed compared to the wider investment industry.

As the bar chart shows, the simulated performance of all of evestor’s portfolios tends to outperform the benchmark, with the exception of our lowest risk portfolio for the past five years. You can also see that the highest risk portfolio could have generated the highest returns, though it’s important to note it also had the potential to lose the most capital, which shows this portfolio may have been better suited to an investor willing to take more risk. Our lowest risk portfolio was significantly less volatile, so while it had the lowest potential returns, it also had a lower risk of capital loss, which may have been suited to a more conservative investor, who was less willing to risk a lot of capital.

Two graphs that show simulated performance of all of evestors portfolios

Maximum drawdown

Maximum drawdown is a way of measuring the relative riskiness of an investment.

It shows you how much you could have lost if you invested when the portfolio was at its most valuable and cashed out when it reached its lowest point (between the 1st of January and the 31st of December 2017).

Finance website Boring Money looked at how some of the biggest investment platforms, including evestor, performed during 2017, and compared them with the FTSE 100 – the 100 biggest companies listed on the London Stock Exchange – as a benchmark.

All of evestor’s portfolios increased in value during 2017, but here’s how much you could have lost if you had invested £5,000 when the portfolio was at its highest and cashed out when it was at its lowest (in 2017).

evestor Portfolios Maximum Drawdown
evestor lowest risk portfolio -£60
evestor medium risk portfolio -£81
evestor highest risk portfolio -£96
Benchmark Comparison
Benchmark: FTSE 100 -£122

Fee comparison

Another vital consideration for investors is fees. Investment platforms charge fees for their services, which may appear small, but can take a big chunk out of your money over time.

An investment platform might be able to prove it is making bigger returns than a rival, but if its charges are also higher, then your profits could be eaten up by fees, so it’s well worth shopping around to compare costs.

We’ve kept our fees as low as possible, at less than 0.53% a year, compared with an average 2.56% for a traditional financial adviser.

Here’s a table showing our fees compared to some of our biggest competitors, and how much money you could save over the next 10 years by investing in an evestor Stocks & Shares ISA.

table screenshot from isa season page, this shows diffrernece between portfolios.

This is based on one lump sum contribution of £20,000. For this example, we have used the FCA’s mid-growth rate of 5%. Don’t forget that when you invest your capital is at risk and any investment into stocks and shares can go down as well as up in value. These figures are correct as at 31st January 2018.

To get free advice and start investing for the future, register with us now.