Wealth Preservation Funds/IT's

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  • Malthusian
    Malthusian Posts: 10,938 Forumite
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    JohnRo wrote: »
    Simplistically is it not better just to target a larger cash pool allocation as risk mitigation and crack on with the equity investments?

    Depends if you do actually take a holistic view when the crash comes. Two investors, one with £100k in HL and £100k in cash, and one with £100k in HL and only short-term expenses in cash, get the same statement from HL showing they now have £50k, with the same graph showing that their investment's gone *whistling + splat noise*.

    Of course in terms of their whole portfolio, the latter has lost 50% and the former only 25%. But the former's HL statement still shows a loss of 50%. And they read the same headlines about how economic indicators have never been worse, consumer confidence has collapsed, and the recession is likely to last for years (this is what headlines were saying in March 2009, the absolute best time to invest).

    People only believe in diversification when everything is going up. When investments fall they look at them in isolation. Similarly, for most people, the amount they hold in cash makes barely any difference whatsoever to the probability they will panic and cash in during a stockmarket fall. If they're going to panic they'll panic.
  • Audaxer
    Audaxer Posts: 3,508 Forumite
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    Malthusian wrote: »
    Depends if you do actually take a holistic view when the crash comes. Two investors, one with £100k in HL and £100k in cash, and one with £100k in HL and only short-term expenses in cash, get the same statement from HL showing they now have £50k, with the same graph showing that their investment's gone *whistling + splat noise*.

    Of course in terms of their whole portfolio, the latter has lost 50% and the former only 25%. But the former's HL statement still shows a loss of 50%. And they read the same headlines about how economic indicators have never been worse, consumer confidence has collapsed, and the recession is likely to last for years (this is what headlines were saying in March 2009, the absolute best time to invest).

    People only believe in diversification when everything is going up. When investments fall they look at them in isolation. Similarly, for most people, the amount they hold in cash makes barely any difference whatsoever to the probability they will panic and cash in during a stockmarket fall. If they're going to panic they'll panic.
    Some people would think that way, but I think a lot of sensible investors with £100k in equities and £100k in cash would think a 50% equity crash was a good time to invest at least some of their £100k cash in cheap equities, or at least not sell at a loss.
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    Audaxer wrote: »
    Some people would think that way, but I think a lot of sensible investors with £100k in equities and £100k in cash would think a 50% equity crash was a good time to invest at least some of their £100k cash in cheap equities, or at least not sell at a loss.

    This is where a pretty dogmatic approach to rebalancing comes in useful. Having invested through at least 4 market crashes I can vouch for the long term utility of rebalancing. If you hold a balanced fund like VLSxxx that rebalancing will happen automatically and of course just holding 100% equities would have worked as well.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • Linton
    Linton Posts: 17,162 Forumite
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    coyrls wrote: »
    [FONT=&quot]A wealth preservation IT is not a way to avoid holding bonds. As others have said, you will still be holding bonds via the IT. Now as Bowlhead has said, the IT can actively manage its bond holdings through choice of duration and quality but so can an actively managed 100% bond fund. The advantage of holding a bond fund is that you can more easily control the percentage of your investments that is held in bonds.[/FONT]

    You assume that the Wealth Preservation ITs major in bonds. I hold RCP and RICA ITs (and Trojan O ut/oeic). According to Morningstar RCP is currently shorting bonds and holds most of its assets in "Other" (private equity, loans for example) and RICA is currently at 41% bonds and 39% equity. The whole point of holding this types of IT is that their investments are chosen, allocated and managed with the objective is to preserve wealth at the expense if need be of long term return. Presumably the average bond fund is managed with a rather different objective.
  • BLB53
    BLB53 Posts: 1,583 Forumite
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    I have held Capital Gearing for the past 5 yrs in my ISA and really pleased with how it performs and enjoy reading the quarterly reports from the long term manager Peter Spiller.
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    I've never been attracted to Investment Trusts (CEFs) because they are actively managed, have higher fees than I want to pay and use techniques like gearing (leverage) and things like derivatives. I understand how stocks, bonds and cash work and so stick to those.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • bigadaj
    bigadaj Posts: 11,531 Forumite
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    StellaN wrote: »
    I tend to agree and the OP did say he/she had a good cash buffer. I myself hold 100% equities even though I am 60 on my next Birthday but I also have around £100K in cash in the usual best interest bank accounts just in case of a downturn.

    So that isn't really 100% equities I'd have said.
  • ColdIron
    ColdIron Posts: 9,049 Forumite
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    20% of my SIPP is RCP and PNL. Because it's in drawdown I'm restricted with my annual contributions. The idea is to have the flexibility to be able to top up or increase the income producing part in future years and I prefer them to dead cash for this purpose
  • dividendhero
    dividendhero Posts: 2,417 Forumite
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    bostonerimus wrote: »
    I've never been attracted to Investment Trusts (CEFs) because they are actively managed, have higher fees than I want to pay and use techniques like gearing (leverage) and things like derivatives. I understand how stocks, bonds and cash work and so stick to those.

    Seems rather a dogmatic approach! I could turn round and say that ETF's are mostly located offshore, some are synthetic and many indulge in loaning out shares to third parties
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
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    dividendhero wrote: »
    Seems rather a dogmatic approach! I could turn round and say that ETF's are mostly located offshore, some are synthetic and many indulge in loaning out shares to third parties

    Not really, I just like to know what I own. ITs can go off in all sorts of directions.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
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