How do self investors decide on asset/fund allocation?

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  • Malthusian
    Malthusian Posts: 10,898
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    jamesd wrote: »
    Shorting can be speculation but that's not all it's for. It can also be used to protect you from stock market falls, say by buying a short option that pays out if the market drops by more than twenty percent over the next three months. That can be used to protect you against big drops.

    True, but for the vast majority of investors a better way to protect you against big drops is to wait until you get the equally big rise. Making sure you have enough in cash that you can wait for the rise, and that you are diversified enough that you benefit from the rebound.
  • bostonerimus
    bostonerimus Posts: 5,617
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    My only "shorting strategy" is to have a cash allocation and to rebalance on the drops.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • TBC15
    TBC15 Posts: 1,446
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    Malthusian wrote: »
    True, but for the vast majority of investors a better way to protect you against big drops is to wait until you get the equally big rise. Making sure you have enough in cash that you can wait for the rise, and that you are diversified enough that you benefit from the rebound.

    What’s a sensible amount of cash to have on hand i.e. annual spending x ?
  • AnotherJoe
    AnotherJoe Posts: 19,622
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    Depends who you speak to, but around 2-3x annual spend. IIRC I read a backtested strategy where 3x was optimum but I can't recall where now.
  • point5clue
    point5clue Posts: 80
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    edited 7 July 2017 at 10:01PM
    On the other hand Big ERN thinks cash cushions are problematic...

    https://earlyretirementnow.com/2017/03/29/the-ultimate-guide-to-safe-withdrawal-rates-part-12-cash-cushion/

    Edit: Wow, I've just re-read this properly - I'd forgotten how damming it is !
    Love to hear contrary views ?
  • bostonerimus
    bostonerimus Posts: 5,617
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    5% or 1 or 2 years of spending is common. It's mostly to help with cash flow and short term corrections. For serious down turns that last for years you have to also reduce spending and withdrawals or have a source of income other than drawdown. That could be part time work, rent from a BTL, a defined benefit pension or even an annuity.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • jamesd
    jamesd Posts: 26,103
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    point5clue wrote: »
    On the other hand Big ERN thinks cash cushions are problematic...

    https://earlyretirementnow.com/2017/03/29/the-ultimate-guide-to-safe-withdrawal-rates-part-12-cash-cushion/

    Edit: Wow, I've just re-read this properly - I'd forgotten how damming it is !
    Love to hear contrary views ?
    You may have fallen for their error: you're in drawdown. You have to take that income out of some part of the total returns of your investment somehow. If it's not coming out of dividends, it's coming out of capital.

    They seem to even more greatly misunderstand Guyton-Klinger, wrongly asserting that it first takes income out of the highest returning part of the portfolio, equities. It really takes it first from cash, then bonds, and equities after that. Though there is a bull market rule that sets aside some cash for later use. I don't know whether they drew income first from equities in their attempts to see how the rules worked. For safe withdrawal rate calculations in cfiresim you can also specify a minimum income target and the initial safe withdrawal rate will be adjusted to allow for it. Guyton subsequently presented sequence of return risk reduction rules that change equity holdings based on CAPE but they don't seem to have used those, instead picking an inappropriately high equity percentage.
  • Itsallagame
    Itsallagame Posts: 46 Forumite
    Shorting is betting that something will lose value. You might have a contract with someone to borrow some shares they own and then give them back plus a fee at some time in the future. If you think those shares will lose value you sell them now and buy them back at a lower price before you have to give the shares back and you pocket the difference.

    This really is gambling and you don't want to be doing it.

    It may have escaped your attention but being invested is also gambling.

    Most people who self invest should have a view on markets and be looking to take profits at the appropriate time and then sit out until they feel the market is right for them to invest/gamble again.

    I simply take positions on my SIPP that I hope to make me money based on where I think the market is e.g FTSE100 at 7550 is too high so I buy an exchange traded fund e.g. SUK2.

    In my employers pension I have £50k sitting in a cash fund because I sold out near the top of the market at 7500 on FTSE and the investment options are so limited as I can only buy a handful of funds that are not attractive at this time. It's annoying as I don't want that fund sitting doing nothing for a long spell.

    I am gradually moving into short dated bonds yielding over 5% but at the moment they are as scarce as hen's teeth.
  • Itsallagame
    Itsallagame Posts: 46 Forumite
    My only "shorting strategy" is to have a cash allocation and to rebalance on the drops.

    You can then be out of the market earning nothing for quite a while.

    I have an annual growth target of 5.75% on my SIPP that will deliver retirement at 55. The pension always need to be working
  • Thrugelmir
    Thrugelmir Posts: 89,546
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    point5clue wrote: »

    Edit: Wow, I've just re-read this properly - I'd forgotten how damming it is !
    Love to hear contrary views ?

    The points re dividends are the ones that consistantly get overlooked. When people hold funds they lose sight of high much growth in the funds value is actually generated by reinvestment of dividends. Along with the increase in. Until there isn't.
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