Investments

[stevemcs]

Without trying to drag this into a brexit thread, if you had a reasonable amount of money would you invest it now or wait for a few months to see what happens regarding the EU, money is likely to be invested in something around stocks and shares.

[boyse7en]

Glad you asked this, as I'm in the same boat.

I've got an ISA that's paying 1% interest that I'd like to get doing something a bit more interesting, but I'm not sure if now is a completely crazy time to be investing. I'm looking for a long-term investment, so short term market volatility isn't a worry, but theres a lot of talk around EU recession which is making me cautious.

[samsock]

I don't think anyone knows, not least us.

What is Mogg doing with his spare cash? Probably as good a predictor as any.

[BoRED S2upid]

I’d drip feed it into a wide range of funds so your exposure isn’t limited to just the EU or just America you could also go for funds that focus more on bonds than stocks which could offer more stability. It’s a crazy time currently but who knows what’s around the corner a positive Brexit deal could reap rewards a no deal the opposite. Who knows. Crystal ball time. Markets are up today I hear.

[limpsfield]

I would go for the drip feed approach too rather than trying to lump it in either side of the Brexit date.

Markets fell heavily in December, and have soared this month. Assuming you are in for the long term, personally I would want to spread out my purchase dates rather than just trying to time it to perfection - it's what I am doing.

[btdk5]

The UK represents less than 5% of the global economy. I dont think its Brexit you should be looking at to alter your investment decisions...

[FredClogs]

samsock said:

I don't think anyone knows, not least us.

What is Mogg doing with his spare cash? Probably as good a predictor as any.

It's been fairly well publicised that his company (the one he founded, I don't know how much of it is actually his) SCM has chosen Ireland as a domicile for its most recent fund launch.

I've been buying UK index since the end of October, to some stability if not great success. The longer it goes on the softer the brexit we'll get, in my opinion. Making a global investment at the moment won't be massively effected by brexit, imo, the US government shutdown looks to be a larger risk to short term global equity pricing, imo.

[putonghua73]

boyse7en said:

Glad you asked this, as I'm in the same boat.

I've got an ISA that's paying 1% interest that I'd like to get doing something a bit more interesting, but I'm not sure if now is a completely crazy time to be investing. I'm looking for a long-term investment, so short term market volatility isn't a worry, but theres a lot of talk around EU recession which is making me cautious.

Two comments:

Short-term market volatility is a worry if you buy with a lump sum near the top, and there is a slowdown on the near horizon that causes prices to plummet i.e a 20% fall will require a 40% gain to recover losses.

"something a bit more interesting" - I personally prefer an investment vehicle that is utterly boring, yet provides a good risk-adjusted return i.e. passive index tracker with accumulated dividends and low cost (around 0.3 - 0.35%) e.g. FTSE All-Share tracker, Global tracker, etc. If you want to drip-feed i.e. pay a fixed amount over a period of time e.g. £500 every quarter, then market volatility doesn't matter as much because the theory is that whilst the annual return may be positive or negative - 2008 FTSE 100 was approx 28%.3 down, whilst 2013 18.7% up - over your investment period (the longer, the better) the average return over the period is estimated between 8%-10%.

This Motely Fool article explains the theory in very simple terms: FTSE 10 Year Return

The problem is that not every 10 year rolling period is equal.

In terms of investing, there are 5 broad asset classes:

1. Equity (shares)
2. Debt (bondes)
3. Property
4. Commodities
5. Cash

There are a number of considerations to incorporate in your investment stratetgy: investment horizon (short, medium, or long), risk appetitie, liquidity (how easily you can convert the asset into cold, hard cash), inflation (you want your money to grow in real terms), investment amount and type (lump sum or regular deposits), and investment vehicle.

Before you do anything with your money in the ISA, spend some time getting some basic investment knowledge (MoneyWeek has a series of investment topics on YouTube, and Investopedia is a good site to obtain foundational knowledge). I'd also advise buying a copy of Benjamin Graham's 'Intelligent Investor' for starters.

Read up on mental models (frameworks) such as Bayesian Theory to assist you in your decision making. The idea is very simple at its core - it requires you to make a theoretical wager of the odds of an event occuring e.g. Brexit. You are not required to make a determination on whether Brexit is a good / bad thing, only what are the odds that the event will happen. As you obtain more information, you reassess your original wager and update the probability of an event occuring. You then start to investigate the potential outcomes of such an event occuring (or not), and build this into your investment strategy.

My own investment is in a Defined Contribution [DC] pension fund w/ Fidelity, that I long ago stopped paying in (left my previous company over 6 years ago). I originally chose a 50/50 UK / Global passive index tracker that tracks various region share indexes because I wanted an investment vehicle that required little to no maintenance, and allows me to Sleep Well at Night [SWAN]. Also, as I learned after my disasterous RBS foray in 2008 (losing 83%), I am not a terribly good stock picker and/or didn't put in the required amount of homework to invest in individual shares.

For the purposes of full disclose, I'm still not good at swotting up and have made a schoolboy error: I am extremely bearish at Brexit, so sold my 50/50 fund for a Global fund excl UK. What I failed to do prior to swapping out, was to check the regional allocation of my new fund. 65% US / 35% ROW Swapped one risk for another risk, and my actual allocation is worse!

Lesson: do your homework properly before making an investment decision.

FWIW, I too am concerned at a slowdown and am keeping an eye of the inverted bond yield (when 2yr Govt bond yields rise above 10yr Govt bond yields for example) as the canary in the coalmine. I plan to switch into bonds in 9-12 months for 18 months or so. I also want to have cash ready if a slowdown / recession occurs to pick up bargins approx 18 months after the slowdown i.e. around the bottom. 2008 presented massive bargins i.e. solid companies trading on low valuations. The trick is deciphering the solid companies from companies that will cause you to lose your shirt - thus, understanding company valuations is critical. This time I plan to be prepared in terms of my fundamental understanding so I don't put my money into a RBS instead of a Barclays! That said, I now view the experience - 10 years down the line - as a relatively cheap (£3.5k) education compared to people during the dotcom boom who lost everything through leveraged bet-the-farm punts.

Edited by putonghua73 on Friday 18th January 13:02

[Derek Chevalier]

BoRED S2upid said:

you could also go for funds that focus more on bonds than stocks which could offer more stability.

You'd need to double check which type of bonds the fund held - HY does tend to behave like equity in volatiles times - chocolate teapot springs to mind!

[Derek Chevalier]

putonghua73 said:

yet provides a good risk-adjusted return i.e. passive index tracker with accumulated dividends and low cost (around 0.3 - 0.35%) e.g. FTSE All-Share tracker, Global tracker, etc.

Worth emphasising that the FTSE all share and Global tracker will likely have very different risk adjusted returns.

And as an aside (and slightly O/T), it's worth looking at drawdowns as well as risk-adjusted returns - will pick up the fat tails which are the times when people are tempted to bail on their investments.

[DonkeyApple]

stevemcs said:

Without trying to drag this into a brexit thread, if you had a reasonable amount of money would you invest it now or wait for a few months to see what happens regarding the EU, money is likely to be invested in something around stocks and shares.

It’s a very good question to which there is no known answer. Under such a circumstance the tactic of averaging in over time is arguably the most sensible approach and I would add that we are probably in a period where cash is becoming more valuable so would personally favour an approach that saw more cash being held than has been needed over the last decade.

Whether to focus on U.K. blue chips or global blue chips is a difficult element because of evaluating currency risk. The U.K. has a very big event looming that we know will impact the GBP but the EU and the US are also facing QE related events that will have material impacts on their currencies. Plus, most U.K. blue chips already have strong global currency exposures anyway.

In short, I would be focusing on setting up the correct tax wrappers for myself as a starter and then dripping money in rather slowly. I would suggest not doing anything until after March but I think that might be moot as I think that event is going to get moved out in all likelihood.

[Btlguru]

putonghua73 said:

Two comments:

Short-term market volatility is a worry if you buy with a lump sum near the top, and there is a slowdown on the near horizon that causes prices to plummet i.e a 20% fall will require a 40% gain to recover losses

Are you sure?!
0.8 * 1.25 = 1.0

[putonghua73]

Btlguru said:

Are you sure?!
0.8 * 1.25 = 1.0

Nope, because as you quite rightly point out by producing the workings my maths was way, way off! The only investment that I'm going to do anytime soon is in paper and pencil to produce workings by hand!

[LeoSayer]

Terry Smith talks about timing the market in his annual newsletter:

https://www.fundsmith.co.uk/docs/default-source/an...

Here's a snippet:

"No one can predict market downturns with any useful level of
reliability. Forecasts of what may happen in the market are
about as reliable as Michael Fish’s infamous denial that there
would be a hurricane in the BBC weather forecast on 15th
October 1987."

[Derek Chevalier]

LeoSayer said:

Terry Smith talks about timing the market in his annual newsletter:

https://www.fundsmith.co.uk/docs/default-source/an...

Here's a snippet:

"No one can predict market downturns with any useful level of
reliability. Forecasts of what may happen in the market are
about as reliable as Michael Fish’s infamous denial that there
would be a hurricane in the BBC weather forecast on 15th
October 1987."

It's also very hard to predict the future of various factor performance

[DonkeyApple]

I think most managers knew this was coming but the real problem is that if your fund mandate is to be 10% cash and 90% equities then you can’t do much other than checking that your equity holdings are best suited for a limited downside. But at least your peers are all in the same boat. It all seems to be focussing around China growth at the moment but some see the decline reversing before the end of the year.

[LeoSayer]

There is limited scope for fund managers to time the market via an vanilla equity funds but there are funds that offer alternative strategies which aim to minimise exposure to market direction eg. Absolute Return, Market Neutral and certain fund of funds.

They're not necessarily better performers though.

[Derek Chevalier]

LeoSayer said:

There is limited scope for fund managers to time the market via an vanilla equity funds but there are funds that offer alternative strategies which aim to minimise exposure to market direction eg. Absolute Return, Market Neutral and certain fund of funds.

They're not necessarily better performers though.

There's a big difference between aiming to time the market and actually succeeding. Similarly, there are funds that aim to minimise exposure to market direction, how many of them succeed? I would questions what objective they fulfil (that couldn't be done more efficiently elsewhere)

[FredClogs]

Interesting letter from Terry Smith, he's essentially using the Buffet maxim of buying good companies at the correct price and holding long term, not timing the market. If one does this surely they're bound to exceed market returns. Of course identifying what is a good company and what isn't and where it'll be in 5 years isn't an exact science but his track record and that of some others seems impressive.

[Derek Chevalier]

FredClogs said:

Interesting letter from Terry Smith, he's essentially using the Buffet maxim of buying good companies at the correct price and holding long term, not timing the market. If one does this surely they're bound to exceed market returns. Of course identifying what is a good company and what isn't and where it'll be in 5 years isn't an exact science but his track record and that of some others seems impressive.

It's a strong ask to exceed market/benchmark returns - what does Terry know that the rest of the market doesn't? What are you using as a benchmark to determine how successful he has been?