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    • Third Age
    • By Third Age 9th Oct 16, 8:30 AM
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    Third Age
    How To Protect Against Sterling Falls
    • #1
    • 9th Oct 16, 8:30 AM
    How To Protect Against Sterling Falls 9th Oct 16 at 8:30 AM
    Hello everyone,

    I have come into a large sum of money which I eventually want to invest is a diverse portfolio but I like the idea doing in in stages.

    The problem is that the money is in sterling cash deposit & this does not appear sensible. Is there an effective, easy and inexpensive way to protect my inheritance against sterling fluctuations that does not involve investing 100% in one go?
    Last edited by Third Age; 09-10-2016 at 8:54 AM.
Page 1
    • AnotherJoe
    • By AnotherJoe 9th Oct 16, 8:51 AM
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    AnotherJoe
    • #2
    • 9th Oct 16, 8:51 AM
    • #2
    • 9th Oct 16, 8:51 AM
    Invest In a low cost global tracker fund. Many different ones. Then your money is in multiple currencies it's just that the fund is priced is Sterling but for instance you'd have inestements in companies like Apple and Roche and BMW etc which ultimately are priced in dollars, Swiss francs, Euros etc all in this one fund . So if Sterling falls the fund rises. Of course, if longer term Sterling starts to rise again eventually then any rises in the underlying investments will be offset by this.

    Examples of such investments would be Vanguard FTSE All-World UCITS ETF, or Vanguard Lifestrategy (several) or Legal and General have one, many different variants.

    And if you can't choose, little harm in buying two or three even though in theory there's little,difference between them.
    Last edited by AnotherJoe; 09-10-2016 at 8:59 AM.
    • Third Age
    • By Third Age 9th Oct 16, 8:56 AM
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    Third Age
    • #3
    • 9th Oct 16, 8:56 AM
    • #3
    • 9th Oct 16, 8:56 AM
    That is one of the answers that I am considering but it means that I am 100% fully invested in the stock market in one go which is what I am trying to avoid.
    • AnotherJoe
    • By AnotherJoe 9th Oct 16, 9:00 AM
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    AnotherJoe
    • #4
    • 9th Oct 16, 9:00 AM
    • #4
    • 9th Oct 16, 9:00 AM
    That is one of the answers that I am considering but it means that I am 100% fully invested in the stock market in one go which is what I am trying to avoid.
    Originally posted by Third Age
    I don't understand. Why can't you set up for example a monthly subscription and invest 1/12 of your cash each month so it takes a year until you are fully invested??
    • Glen Clark
    • By Glen Clark 9th Oct 16, 9:05 AM
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    Glen Clark
    • #5
    • 9th Oct 16, 9:05 AM
    • #5
    • 9th Oct 16, 9:05 AM
    There is no risk free way to protect the value of your money.
    You can buy index linked bonds, but they are so expensive that 36 year ones are trading near double their face value, making a guaranteed 50% loss in real terms over 36 years, and even that is not without some risk
    The best advice seems to be diversify - spread your eggs among many baskets and hope for the best. A world tracker is probably the cheapest way of getting reasonable diversification.
    The Council Tax on a 3 bed semi is higher than Buckingham Palace
    • Glen Clark
    • By Glen Clark 9th Oct 16, 9:13 AM
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    Glen Clark
    • #6
    • 9th Oct 16, 9:13 AM
    • #6
    • 9th Oct 16, 9:13 AM
    I am 100% fully invested in the stock market in one go which is what I am trying to avoid.
    Originally posted by Third Age
    Its just the psychological factor really isn't it.
    Don't think of it as spending your money, its merely moving it from one investment to another. If you invest it all in one go you are taking the same risk as those of us who are already fully invested.
    The problem is that if the stock market falls 30% straight after you have invested you will probably feel worse than those of us who have been in it for years, even though we have all lost the same amount.
    Last edited by Glen Clark; 09-10-2016 at 9:16 AM.
    The Council Tax on a 3 bed semi is higher than Buckingham Palace
    • AnotherJoe
    • By AnotherJoe 9th Oct 16, 9:16 AM
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    AnotherJoe
    • #7
    • 9th Oct 16, 9:16 AM
    • #7
    • 9th Oct 16, 9:16 AM
    Ah OK I think I've twigged it, you intend to invest in global funds but over time and are worried that over that time* whilst you invest in global funds , Sterling will continue to fall so you'll be getting less investments.

    So you could perhaps look at initially investing 100% in vanguard life strategy 20 which is only 20% equity and the rest stuff like bonds but will be pretty much overseas amd out of Sterling. Then gradually switch it to life strategy 100 or other similar funds. Of course you'll lose out through dealing costs and the spread between buy and sell. No such thing as a free lunch.

    Buying currencies instead would be incredibly expensive and risky and pretty much certain to cause a loss. and there are other risks, for example,a trump win unlikely as it seems right now, might cause a big fall in the dollar. Trying to become a currency trader is unlikely to end well . and makes the risk of investing in a lump sum pale into utter insignificance.

    * statistically, FWIW, gradual investing of a lump sum has a poorer payback than just a single purchase. But I can appreciate why you'd do it.
    Last edited by AnotherJoe; 09-10-2016 at 9:19 AM.
    • Third Age
    • By Third Age 9th Oct 16, 9:17 AM
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    Third Age
    • #8
    • 9th Oct 16, 9:17 AM
    • #8
    • 9th Oct 16, 9:17 AM
    I hear what you are both saying. I was just wondering if there was something that I had missed.

    The other option that I am considering is a short duration global corporate bond fund where any change in interest rate has much less effect than longer term bonds. I can then protect my cash in world terms as I feed it into my chosen share investments which may well be a world tracker.

    It probably is psychological but I cannot control my mind that easily!!!

    The more I look at investing the more I think that a few global trackers might be the total answer for the share part of my portfolio. It is a very large sum of money & I would feel happier if it wasn't all held by the same fund provider.
    Last edited by Third Age; 09-10-2016 at 9:23 AM.
    • mariotr
    • By mariotr 9th Oct 16, 9:21 AM
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    mariotr
    • #9
    • 9th Oct 16, 9:21 AM
    • #9
    • 9th Oct 16, 9:21 AM
    Its just the psychological factor really isn't it.
    Don't think of it as spending your money, its merely moving it from one investment to another. If you invest it all in one go you are taking the same risk as those of us who are already fully invested.
    The problem is that if the stock market falls 30% straight after you have invested you will probably feel worse than those of us who have been in it for years, even though we have all lost the same amount.
    Originally posted by Glen Clark
    The stock market (just like any other form of investment) goes through peaks and throughs, and given that you can't time the market, investing a sum of money in several stages is a good idea.
    • AnotherJoe
    • By AnotherJoe 9th Oct 16, 9:23 AM
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    AnotherJoe
    I hear what you are both saying. I was just wondering if there was something that I had missed.

    The other option that I am considering is a short duration global corporate bond fund where any change in interest rate has much less effect than longer term bonds. I can then protect my cash in world terms as I feed it into my chosen share investments which may well be a world tracker.
    Originally posted by Third Age
    That is what investeing in vanguard life strategy 20 would do I think. But that, or your idea would incur dealing costs so it's not risk free, you are just swapping one risk for another and incurring costs

    Bottom line, there is no such thing as a free lunch, whatever you do has differing risks and costs, some known some unknown.
    • Gadfium
    • By Gadfium 9th Oct 16, 9:33 AM
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    Gadfium
    That is one of the answers that I am considering but it means that I am 100% fully invested in the stock market in one go which is what I am trying to avoid.
    Originally posted by Third Age
    Well, an alternative way to look at it is that at the moment you are 100% invested in a single currency. And you are trying to get away from that because of the potential continued devaluation of that currency. Yet, at the same time you don't want to be invested in the stock market. Sit back, have a think about what is making you nervous and see if its a rational fear.

    It might be worth taking professional advice as well, especially as you don't sound like you are used to the sums that you are talking about. You should also consider other factors such as your age, long term goals, pension position, emergency fund, tax situation, dependants and so on.
    • Third Age
    • By Third Age 9th Oct 16, 9:40 AM
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    Third Age
    As far as I can see none of the funds like Vanguard Life invest in short duration bonds exclusively. The largest holding in the Vanguard Life 20 is, I think, the "Global Bond Index Fund" and third the "UK Government Bond Index Fund" The Global Fund which I suspect I hedged back to Sterling. Neither fund protects against sterling fluctuations.

    I don't think that a Vanguard Life fund is the answer that I am looking for and that is why the short duration global bond funds plus a global tracker that I feed into have appeal.
    Last edited by Third Age; 09-10-2016 at 9:42 AM.
    • AnotherJoe
    • By AnotherJoe 9th Oct 16, 9:57 AM
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    AnotherJoe
    Surely any global bond would hedge against Sterling fluctuations by its very nature, e.g.global? If they hedged global bonds back to Sterling there would be no point having global mighta s we'll just invest in Sterling bonds.

    Anyway you seem to have worked out your strategy now which AIUI is put 100% into a short term global bonds and then over a period you feel comfortable with, either on a defined schedule or as you feel the market makes it preferable,, sell that and buy into one or more global equity funds until you are 100% (or less?) invested.

    Have you decided if you'll do it on a fixed schedule or ad hoc ?
    • fireblade28
    • By fireblade28 9th Oct 16, 10:12 AM
    • 85 Posts
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    fireblade28
    Use it for forex trading and make use of the fluctuations?

    On the serious note theres not much you can do. If you want to invest abroad there will always be fluctuations. You could always invest in home equities so that £1 still means £1 but you are kinda limiting yourself to growth potential.

    Sterling is unlikely to fall much more in my opinion but in the long term it may not regain to be the powerhouse it once was. Hard to predict.
    • Third Age
    • By Third Age 9th Oct 16, 10:12 AM
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    Third Age
    I am not sure that Another Joe & I think that "hedged" means the same thing. To me it means that the currency movement is taken out of the equation. If the pound either fell or rose against the currency that the Bond is issued in would not change the value of the holding in the fund that I held in sterling. This is exactly what I don't want. I am willing to accept currency risk at this time. Am I wrong in my understanding of what "hedged" means ??????

    I am not decided on exactly what to do. I know what I am going to do unless someone comes up with something better - that is not to say that I find my solution ideal but then little in the real world is ideal.

    I am certain however that I want as little as possible to be in the UK/Sterling for the immediate (probably 3 years minimum) future. I think that I prefer a global solution exUK at this time.
    Last edited by Third Age; 09-10-2016 at 10:29 AM.
    • AnotherJoe
    • By AnotherJoe 9th Oct 16, 11:21 AM
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    AnotherJoe
    I dont think I wrote down what I meant

    What I meant was, if you buy a global bond, it wont be hedged to Sterling, because if it was there would be no point in hedging, buy a purely UK one invested only in UK companies.

    In a truly global bond, if sterling falls, the fund would rise. And vice versa.
    • Third Age
    • By Third Age 9th Oct 16, 11:35 AM
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    Third Age
    AnotherJoe.

    Thank you - we do mean the same thing by "hedged".

    I think that the gilt holding in Vanguard LifeStrategy 20 despite being a Global Fund is hedged back to Sterling.
    Last edited by Third Age; 09-10-2016 at 11:37 AM.
    • AnotherJoe
    • By AnotherJoe 9th Oct 16, 11:55 AM
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    AnotherJoe
    OK, have to admit I"ve never looked at what Vanguard do I'd assumed (bad I know) it was a global fund so you took the rough with the smooth, cant see the point of a global fund otherwise. have you looked ata graph of it adn what happened to it on teh days there were significant falls in the dollar. 24th June and this past week for example. If there are significant rises its not hedged.

    One other thing - your post says "How To Protect Against Sterling Falls" but in post 15 you write "
    I am willing to accept currency risk at this time."

    Is there a "not" missing from that?
    Last edited by AnotherJoe; 09-10-2016 at 11:58 AM.
    • Third Age
    • By Third Age 9th Oct 16, 2:12 PM
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    Third Age
    What is going on in my head doesn't necessarily translate well to what I say or write - put it down to age.

    I am willing to accept currency risk on a global basis but not to have all my currency risk in sterling. I thus do not want my funds hedged back to sterling. I don't really see any logic in tracker funds that are hedged.
    • Linton
    • By Linton 9th Oct 16, 2:23 PM
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    Linton
    That is one of the answers that I am considering but it means that I am 100% fully invested in the stock market in one go which is what I am trying to avoid.
    Originally posted by Third Age
    You dont have to do the same thing with all your money. Divide the pot into tranches, ideally with different objectives. So you could perhaps keep 1/3 in cash for short term use, 1/3 in global equity for long term investing and 1/3 in global bonds. For the long term investing part it doesnt matter what sterling does near to BREXIT - over the next many years sterling will go up and down several times, as will the stock market. Its the long term return that matters.
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