S&P500 at record highs - time to stay in or pull out?
Discussion
Sheepshanks said:
I don't get bond funds at all. Part of my pension was in one by default and it dropped massively. People said "it'll come back in the end" which is true for individual bonds as they must eventually be repaid at face value (unless they default) but if people withdraw money out of a bond fund such that it is forced to sell some of its holdings then there's surely a chance that it'll never recover?
That’s not how funds work.If people withdraw money from them then there are fewer people to payback from the remaining funds.
People withdrawing assets from a fund make absolutely no difference to the value of the underlying assets whether they are bonds or equities
Inlineonline said:
Sheepshanks said:
I don't get bond funds at all. Part of my pension was in one by default and it dropped massively. People said "it'll come back in the end" which is true for individual bonds as they must eventually be repaid at face value (unless they default) but if people withdraw money out of a bond fund such that it is forced to sell some of its holdings then there's surely a chance that it'll never recover?
That s not how funds work.If people withdraw money from them then there are fewer people to payback from the remaining funds.
People withdrawing assets from a fund make absolutely no difference to the value of the underlying assets whether they are bonds or equities
If someone liquidates their holding for cash out of a fund, that money is removed from the fund, that money needs to be found by the fund manager, either by the fund manager injecting cash from another source, or liquidating some of the bond or equity within the fund to pay out the cash.
The fund prices the value of it's units for both buying into the fund, and also selling our of the fund. If the fund is stripped of cash, that absolutely can affect the funds overall performance. The most extreme example is when everyone wants their money out at the same time (2008 is an example), the fund has to liquidate the assets to pay out the cash, those buying those assets will bid a lower price because they know the seller has no choice but to sell to someone. Worst case scenario the fund value goes to zero and people invested in the fund lose their shirt.
Inlineonline said:
Analyst ratings are hilarious.
If the analyst wrote down their true opinions, it usually end up with the usual outcome.e.g. Terry Smith exposing the aggressive accounting methods by his employer's client didn't fare too well for him, plus another less known analyst releasing a note headed "Can't Recommend A Product" on the infamous Mirror Group wasn't around for the office Xmas party after a call from the late Mr Maxwell.
Sheepshanks said:
Hustle_ said:
A bonds ETF carries a range of securities from short to long. It says the average duration is e.g. 7 years. It is even harder for me to understand what that means to me
Is the whole idea of a bonds ETF carrying a number of different durations kind of a nonsense?
I don't get bond funds at all. Part of my pension was in one by default and it dropped massively. People said "it'll come back in the end" which is true for individual bonds as they must eventually be repaid at face value (unless they default) but if people withdraw money out of a bond fund such that it is forced to sell some of its holdings then there's surely a chance that it'll never recover?Is the whole idea of a bonds ETF carrying a number of different durations kind of a nonsense?
lauda said:
If bonds are sold to meet redemptions, the only investors who crystalise a loss are those who've exited. The people still in the fund still hold the remaining bonds, so will benefit from any future improvements in valuation. The fund will have a smaller base of bonds but there will be fewer units in issue.
That assumes the bonds the fund is holding are sold evenly across the board. If they have to do that, then fine. If they sell all of some of the holding then it does lock in that loss.Sheepshanks said:
lauda said:
If bonds are sold to meet redemptions, the only investors who crystalise a loss are those who've exited. The people still in the fund still hold the remaining bonds, so will benefit from any future improvements in valuation. The fund will have a smaller base of bonds but there will be fewer units in issue.
That assumes the bonds the fund is holding are sold evenly across the board. If they have to do that, then fine. If they sell all of some of the holding then it does lock in that loss.732NM said:
Inlineonline said:
Sheepshanks said:
I don't get bond funds at all. Part of my pension was in one by default and it dropped massively. People said "it'll come back in the end" which is true for individual bonds as they must eventually be repaid at face value (unless they default) but if people withdraw money out of a bond fund such that it is forced to sell some of its holdings then there's surely a chance that it'll never recover?
That s not how funds work.If people withdraw money from them then there are fewer people to payback from the remaining funds.
People withdrawing assets from a fund make absolutely no difference to the value of the underlying assets whether they are bonds or equities
If someone liquidates their holding for cash out of a fund, that money is removed from the fund, that money needs to be found by the fund manager, either by the fund manager injecting cash from another source, or liquidating some of the bond or equity within the fund to pay out the cash.
The fund prices the value of it's units for both buying into the fund, and also selling our of the fund. If the fund is stripped of cash, that absolutely can affect the funds overall performance. The most extreme example is when everyone wants their money out at the same time (2008 is an example), the fund has to liquidate the assets to pay out the cash, those buying those assets will bid a lower price because they know the seller has no choice but to sell to someone. Worst case scenario the fund value goes to zero and people invested in the fund lose their shirt.
Firstly, bond funds (and certainly not bond index trackers) don't hold cash balances material enough to affect performance.
Secondly, fund managers are obliged to protect remaining investors when large redemptions occur.
Please explain what would have to happen to make a bond fund value go to zero.
LeoSayer said:
The bit in bold is scare mongering with little basis in what happens with fund unit pricing
Firstly, bond funds (and certainly not bond index trackers) don't hold cash balances material enough to affect performance.
Secondly, fund managers are obliged to protect remaining investors when large redemptions occur.
Please explain what would have to happen to make a bond fund value go to zero.
Try reading what I responded to. Firstly, bond funds (and certainly not bond index trackers) don't hold cash balances material enough to affect performance.
Secondly, fund managers are obliged to protect remaining investors when large redemptions occur.
Please explain what would have to happen to make a bond fund value go to zero.
732NM said:
LeoSayer said:
The bit in bold is scare mongering with little basis in what happens with fund unit pricing
Firstly, bond funds (and certainly not bond index trackers) don't hold cash balances material enough to affect performance.
Secondly, fund managers are obliged to protect remaining investors when large redemptions occur.
Please explain what would have to happen to make a bond fund value go to zero.
Try reading what I responded to. Firstly, bond funds (and certainly not bond index trackers) don't hold cash balances material enough to affect performance.
Secondly, fund managers are obliged to protect remaining investors when large redemptions occur.
Please explain what would have to happen to make a bond fund value go to zero.
They sound similar but in fact are completely different.
In a Mutual Fund, you own a share of the underlying assets, whether those are shares, bonds, property, whatever. So the only risk is the risk of the underlying assets. As we know a broadly diversified basket of shares is very, very unlikely never to recover from a downturn provided you take a 5-10 year viewpoint. The same is true of Bonds.
In an ETF, you own shares in the company that owns the assets. So like any individual stock it is of course possible for it to go to zero. But why would it?
Only if EVERYONE in the ETF wanted to sell and no-one wanted to buy. This could happen because the underlying assets have gone to zero, but again. if the basket of assets held is broad enough, the chances of this are essentially zero.
Or if for some reason, confidence in the company itself declined dramatically due to some fraud or other serious issue. This is possible in theory, but for any of the large well regulated ETF's that a pension would invest in, essentially impossible.
Investors selling out of either fund are unlikely to be significant enough in numbers to crash the value of the underlying assets, that's putting the chicken and egg the wrong way round. They are more likely to sell because the assets have fallen.
Bonds in general, and Bond funds whether mutual or exchange traded, are generally less volatile and more secure than stocks, whether individual or in a basket. That's their purpose.
They also TEND to be counter-cyclical to stocks, but this is not guaranteed. (High inflation being something that can adversely affect bond prices even if stocks are also falling, a definite possibility now)
So there's absolutely no-reason to reflexly be afraid of Bonds as part of a balanced portfolio, that's just nonsense.
Edited by Inlineonline on Monday 11th May 18:41
Jon39 said:
Never expect Warren Buffet to say what Berkshire Hathaway are buying/selling (commercial reasons), and he is far too clever to forecast what is going to happen tomorrow, this week, next week, next month.
The reason that he did not answer our topic title question, is that he studies individual businesses, never the overall market.
I greatly admire what he has achieved with investing and how wonderful that he and his long time partner Charlie Munger, were always been willing to encourage and openly explain the background to their very successful strategy. So pleased that he has had good health and reached age 95 years before deciding to retire, although remaining chairman, so probably still continues to call at McDonald's each day on the way to his office. -
Before even knowing anything about Warren Buffett, I had already changed my strategy to very long-term investing. It was therefore encouraging to eventually find out from the maestro, that it is the best way to invest. Yet another one of my blunders - never buying a Berkshire Hathaway holding.
It appears that of the Mag 7, he has only ever held Apple (never invests in businesses that he cannot understand) and in recent times (publicly declared) has been reducing that holding, along with Bank of America.
Imagine what it must be like holding $400 billion in Cash and Cash Equivalents, because there is nothing attractive to buy (or large enough to make a difference to BH).
Warren Buffett has often emphasised that C&CEs are guaranteed to lose value, so cannot be entirely happy about their situation, but what a war chest to have ready for possible future opportunities.
Edited by Jon39 on Monday 11th May 11:48
Inlineonline said:
OK, what is needed is a little education about the difference between a Mutual Fund and an Exchange Traded Fund (ETF)
They sound similar but in fact are completely different.
In a Mutual Fund, you own a share of the underlying assets, whether those are shares, bonds, property, whatever. So the only risk is the risk of the underlying assets. As we know a broadly diversified basket of shares is very, very unlikely never to recover from a downturn provided you take a 5-10 year viewpoint. The same is true of Bonds.
In an ETF, you own shares in the company that owns the assets. So like any individual stock it is of course possible for it to go to zero. But why would it?
Only if EVERYONE in the ETF wanted to sell and no-one wanted to buy. This could happen because the underlying assets have gone to zero, but again. if the basket of assets held is broad enough, the chances of this are essentially zero.
Or if for some reason, confidence in the company itself declined dramatically due to some fraud or other serious issue. This is possible in theory, but for any of the large well regulated ETF's that a pension would invest in, essentially impossible.
Investors selling out of either fund are unlikely to be significant enough in numbers to crash the value of the underlying assets, that's putting the chicken and egg the wrong way round. They are more likely to see because the assets have fallen.
Bonds in general, and Bond funds whether mutual or exchange traded, are generally less volatile and more secure than stocks, whether individual or in a basket. That's their purpose.
They also TEND to be counter-cyclical to stocks, but this is not guaranteed.
So there's absolutely no-reason to reflexly be afraid of Bonds as part of a balanced portfolio, that's just nonsense.
Thanks. That's explained quite a few things. The main one being it explains how you can trade outside of trading hours in a ETF.They sound similar but in fact are completely different.
In a Mutual Fund, you own a share of the underlying assets, whether those are shares, bonds, property, whatever. So the only risk is the risk of the underlying assets. As we know a broadly diversified basket of shares is very, very unlikely never to recover from a downturn provided you take a 5-10 year viewpoint. The same is true of Bonds.
In an ETF, you own shares in the company that owns the assets. So like any individual stock it is of course possible for it to go to zero. But why would it?
Only if EVERYONE in the ETF wanted to sell and no-one wanted to buy. This could happen because the underlying assets have gone to zero, but again. if the basket of assets held is broad enough, the chances of this are essentially zero.
Or if for some reason, confidence in the company itself declined dramatically due to some fraud or other serious issue. This is possible in theory, but for any of the large well regulated ETF's that a pension would invest in, essentially impossible.
Investors selling out of either fund are unlikely to be significant enough in numbers to crash the value of the underlying assets, that's putting the chicken and egg the wrong way round. They are more likely to see because the assets have fallen.
Bonds in general, and Bond funds whether mutual or exchange traded, are generally less volatile and more secure than stocks, whether individual or in a basket. That's their purpose.
They also TEND to be counter-cyclical to stocks, but this is not guaranteed.
So there's absolutely no-reason to reflexly be afraid of Bonds as part of a balanced portfolio, that's just nonsense.
I steered clear of ETFs, as I liked the thought that I would have take an break when the markets closed.
Sheepshanks said:
I don't get bond funds at all. Part of my pension was in one by default and it dropped massively. People said "it'll come back in the end" which is true for individual bonds as they must eventually be repaid at face value (unless they default) but if people withdraw money out of a bond fund such that it is forced to sell some of its holdings then there's surely a chance that it'll never recover?
A bond fund such as VAGS, VGOV etc is just a holding fund consisting of a consolidation of individual bonds for the purpose of attracting investors. They can be passively managed or actively managed. The worst that can happen really is for yields to increase and reduce the unit price of the fund (bad). The counter argument to that is yields go higher (good). If you’re tied up in the fund you sell and take a capital loss just like you would an individual bond, or you accept you will just have to hold it for longer in order for the increased yield to make up for the fund price dropping. An individual bond just gives you certainty. A fund won’t go to zeroInlineonline said:
OK, what is needed is a little education about the difference between a Mutual Fund and an Exchange Traded Fund (ETF)
They sound similar but in fact are completely different.
In a Mutual Fund, you own a share of the underlying assets, whether those are shares, bonds, property, whatever. So the only risk is the risk of the underlying assets. As we know a broadly diversified basket of shares is very, very unlikely never to recover from a downturn provided you take a 5-10 year viewpoint. The same is true of Bonds.
In an ETF, you own shares in the company that owns the assets. So like any individual stock it is of course possible for it to go to zero. But why would it?
Only if EVERYONE in the ETF wanted to sell and no-one wanted to buy. This could happen because the underlying assets have gone to zero, but again. if the basket of assets held is broad enough, the chances of this are essentially zero.
Or if for some reason, confidence in the company itself declined dramatically due to some fraud or other serious issue. This is possible in theory, but for any of the large well regulated ETF's that a pension would invest in, essentially impossible.
Investors selling out of either fund are unlikely to be significant enough in numbers to crash the value of the underlying assets, that's putting the chicken and egg the wrong way round. They are more likely to sell because the assets have fallen.
Bonds in general, and Bond funds whether mutual or exchange traded, are generally less volatile and more secure than stocks, whether individual or in a basket. That's their purpose.
They also TEND to be counter-cyclical to stocks, but this is not guaranteed. (High inflation being something that can adversely affect bond prices even if stocks are also falling, a definite possibility now)
So there's absolutely no-reason to reflexly be afraid of Bonds as part of a balanced portfolio, that's just nonsense.
There's no practical difference between what you actually own and how you own it with mutual funds* vs ETFs. They're both just legal wrappers around a pool of underlying assets, and you own units or shares in that wrapper (not the asset manager itself). The underlying assets are legally ringfenced from the asset manager as an operating company and segregated from their balance sheet. So if the asset manager went under tomorrow obviously it'd be pretty operationally disruptive but the funds' underlying assets aren't impaired and your claim on them is unchanged.They sound similar but in fact are completely different.
In a Mutual Fund, you own a share of the underlying assets, whether those are shares, bonds, property, whatever. So the only risk is the risk of the underlying assets. As we know a broadly diversified basket of shares is very, very unlikely never to recover from a downturn provided you take a 5-10 year viewpoint. The same is true of Bonds.
In an ETF, you own shares in the company that owns the assets. So like any individual stock it is of course possible for it to go to zero. But why would it?
Only if EVERYONE in the ETF wanted to sell and no-one wanted to buy. This could happen because the underlying assets have gone to zero, but again. if the basket of assets held is broad enough, the chances of this are essentially zero.
Or if for some reason, confidence in the company itself declined dramatically due to some fraud or other serious issue. This is possible in theory, but for any of the large well regulated ETF's that a pension would invest in, essentially impossible.
Investors selling out of either fund are unlikely to be significant enough in numbers to crash the value of the underlying assets, that's putting the chicken and egg the wrong way round. They are more likely to sell because the assets have fallen.
Bonds in general, and Bond funds whether mutual or exchange traded, are generally less volatile and more secure than stocks, whether individual or in a basket. That's their purpose.
They also TEND to be counter-cyclical to stocks, but this is not guaranteed. (High inflation being something that can adversely affect bond prices even if stocks are also falling, a definite possibility now)
So there's absolutely no-reason to reflexly be afraid of Bonds as part of a balanced portfolio, that's just nonsense.
Edited by Inlineonline on Monday 11th May 18:41
The main differences to the investor are how they're priced and traded (once a day at NAV vs continuously during market hours with a bid-offer spread), and potentially how your investment platform charges you for holding and dealing in them.
- * strictly speaking "mutual fund" is an Americanism, we have OEICs but same thing really
There are three different types of pooled investment vehicle,
1. Mutual fund/OEIC - assets pooled and manged by a professional manager who declares the fund price once a day. They tend to be significantly diversified. The amount of units in issue rises and falls as investors buy and sell. Hence the old name Unit Trust.
2. Investment Trust - the value of the pooled and professionally managed assets floats all day, every day. The manager can borrow to invest as well as seeking cash from investors. The number of shares is fixed and the shares may trade at a premium or discount to the value of their underlying assets.
3. ETF - essentially a hybrid of the two above that tends to take more of a "passive" approach so has less "management" and probably lower costs..
Investment trusts are generally considered higher risk than ETFs because they can borrow to invest and the share price may trade at a premium or discount to their underlying investment assets. Both offer diversification but investment trusts tend to be "active" and ETFs "passive", ETFs usually tracking indices at a lower cost.
You pays your money and you takes your choice.
1. Mutual fund/OEIC - assets pooled and manged by a professional manager who declares the fund price once a day. They tend to be significantly diversified. The amount of units in issue rises and falls as investors buy and sell. Hence the old name Unit Trust.
2. Investment Trust - the value of the pooled and professionally managed assets floats all day, every day. The manager can borrow to invest as well as seeking cash from investors. The number of shares is fixed and the shares may trade at a premium or discount to the value of their underlying assets.
3. ETF - essentially a hybrid of the two above that tends to take more of a "passive" approach so has less "management" and probably lower costs..
Investment trusts are generally considered higher risk than ETFs because they can borrow to invest and the share price may trade at a premium or discount to their underlying investment assets. Both offer diversification but investment trusts tend to be "active" and ETFs "passive", ETFs usually tracking indices at a lower cost.
You pays your money and you takes your choice.
mikeiow said:
So you're saying it told us nothing of real interest
Certainly nothing for any PHers, who are hoping to be given the names of future winning shares.
Simply an opportunity to hear one of the world's best investors. We can all learn from successful people. A man who bought his first shareholding at age 11, then put great effort in to understand the subject, realising the need for patience and eventually becoming worth $150 billion, which he will be donating to charity.
(Warren Buffett's first shareholding was in 1941 at age 11, when he bought three shares of Cities Service Preferred (now CITGO) for himself—and three for his sister—at $38 per share. The stock initially dropped to $27 before rising to $40, when he sold it, teaching him an early lesson in patience.)
[I note a reasonably good results announcement this morning from Imperial Brands. Dividend up 4%.
Continuing steady as she goes progress.]
Sheepshanks said:
I don't get bond funds at all. Part of my pension was in one by default and it dropped massively. People said "it'll come back in the end" which is true for individual bonds as they must eventually be repaid at face value (unless they default) but if people withdraw money out of a bond fund such that it is forced to sell some of its holdings then there's surely a chance that it'll never recover?
History reveals that you are right to be suspicious, particularly lending to the government with gilts.
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