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  • FIRST POST
    • Jeems
    • By Jeems 15th Sep 17, 6:48 PM
    • 167Posts
    • 99Thanks
    Jeems
    Experiencing my first mini dip as a new(ish) investor
    • #1
    • 15th Sep 17, 6:48 PM
    Experiencing my first mini dip as a new(ish) investor 15th Sep 17 at 6:48 PM
    The numbers are very red and lots of minus signs but I dont feel concerned. I'm still up this year (just about).

    But wow, does the strengthening of the £ and the potential interest rate rise really affect share prices that much? Will things settle down? When the £ was strong and interests rates at 5%+, I imagine share prices didnt tumble daily. How did the market react then?

    What can I expect in the near future with continued £/interest rate rises?
Page 2
    • captainreckless
    • By captainreckless 16th Sep 17, 11:35 AM
    • 15 Posts
    • 7 Thanks
    captainreckless
    What about currency though? Most of my holdings are overseas (10% UK, of which many are international corporates anyway via a FTSE All Share tracker).

    So while interest rates may or may not affect things, if the £ continues to rise, can I expect to see more red minus signs?
    Originally posted by Jeems
    This is pretty much my situation as well. When the £ fell after the brexit vote my portfolio was going up like gangbusters. I had to keep reminding myself that this wasn't because I was some sort of genius investor and that soon enough things would start heading in the opposite direction.

    My portfolio was down about 2.5% yesterday. My guess is it'll fall further. Then go up. Or go up and then go down. By how much and when? I haven't a clue. C'est la vie. With a thirty year investment horizon it's just numbers on a screen at this point.
    • talexuser
    • By talexuser 16th Sep 17, 11:40 AM
    • 2,253 Posts
    • 1,725 Thanks
    talexuser
    After over 25 years of investing in Peps and ISAs, this is not a mini dip - it's just normal noise. If that worries you get into defensive funds to limit falls. To me a dip is between 10 and 20% which recovers relatively quickly, a crash is beyond 20% and may take a few years to recover, just keep reinvesting those dividends.
    • ChesterDog
    • By ChesterDog 16th Sep 17, 11:46 AM
    • 772 Posts
    • 1,334 Thanks
    ChesterDog
    After over 25 years of investing in Peps and ISAs, this is not a mini dip - it's just normal noise. If that worries you get into defensive funds to limit falls. To me a dip is between 10 and 20% which recovers relatively quickly, a crash is beyond 20% and may take a few years to recover, just keep reinvesting those dividends.
    Originally posted by talexuser
    Yes, just relax. And be careful what you wish for...

    ...in those rare and fleeting periods of stability and nice, normal market growth, people soon start grumbling about a "worrying lack of volatility". When the volatility index is nice and quiet, it's "a sure sign" that something terrible is "highly likely" to happen, completely unforseen. Out of the woodwork come the book-selling doom-mongers, handwringers and panic merchants, and everything starts to get wobbly all over again.

    So we just sit quietly to one side, and carry on as normal.
    I am one of the "Dogs of the Index".
    • dunstonh
    • By dunstonh 16th Sep 17, 11:58 AM
    • 89,490 Posts
    • 54,952 Thanks
    dunstonh
    It is worth noting that one of the reasons endowments went on to fail is that the 90s actually had very low levels of volatility. The growth was generally quite steady but then followed by two major crashes double the size of the typical crash.

    The lack of early to mid-term volatility meant that regular contributions were not benefiting from being bought at lower prices. So, when the crash did come, it was bigger and hit those with regular contributions harder.

    Volatility is needed for investment returns to be higher. Stability can be more damaging than good.

    If you consider the activity of the last few days to be a dip, I would be more concerned about whether you are investing within your risk profile. Because when a real blip comes, it will be more than the last few days.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • cloud_dog
    • By cloud_dog 16th Sep 17, 12:09 PM
    • 3,169 Posts
    • 1,699 Thanks
    cloud_dog
    The numbers are very red and lots of minus signs but I dont feel concerned. I'm still up this year (just about).

    But wow, does the strengthening of the £ and the potential interest rate rise really affect share prices that much? Will things settle down? When the £ was strong and interests rates at 5%+, I imagine share prices didnt tumble daily. How did the market react then?

    What can I expect in the near future with continued £/interest rate rises?
    Originally posted by Jeems
    Hi...I'm not sure how long 'new(ish) investor' implies but, if I had only recently started my investment journey then I would be hoping of lots of market weakness / retraces / crashes / stagnation for years to come; that way I can build a larger holding in investments before a hopeful more sustained run.

    So, whilst it's not enjoyable seeing red and minus signs, If you are a new(ish) investor embrace the retrace
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
    • chiang mai
    • By chiang mai 16th Sep 17, 12:34 PM
    • 31 Posts
    • 4 Thanks
    chiang mai
    A few things:

    Interest rates up, equities down and fixed interest takes a bath.

    Perhaps look at VIX - CBOE to better understand volatility vs events http://www.marketwatch.com/investing/index/vix

    Peak to trough of +/- 10% is not unusual, perhaps not watching fund portfolio performance too often will help avoid overreaction and stomach ulcers.
    • TrustyOven
    • By TrustyOven 16th Sep 17, 2:12 PM
    • 606 Posts
    • 639 Thanks
    TrustyOven
    A few things:

    Interest rates up, equities down and fixed interest takes a bath.
    Originally posted by chiang mai

    Sometimes, I really wish that people didn't use idioms.

    (idiomatic) To lose a large amount of money in an investment. Shareholders took a bath when the company went bankrupt.
    Goals
    Save £12k in 2017 #016 (£4212.06 / £10k) (42.12%)
    Save £12k in 2016 #041 (£4558.28 / £6k) (75.97%)
    Save £12k in 2014 #192 (£4115.62 / £5k) (82.3%)
    • chiang mai
    • By chiang mai 16th Sep 17, 2:23 PM
    • 31 Posts
    • 4 Thanks
    chiang mai
    Sometimes, I really wish that people didn't use idioms.
    Originally posted by TrustyOven
    Do you disagree that fixed-income investors have the potential to lose money as interest rates rise?
    • bostonerimus
    • By bostonerimus 16th Sep 17, 2:24 PM
    • 866 Posts
    • 436 Thanks
    bostonerimus
    A diverse portfolio can dampen volatility. That's why you should have cash, stocks, bonds, property etc. If you can't deal with a 20% drop in the stock market every 5 years then you will be in for high blood pressure and white hair. Choosing a suitable asset allocation can reduce the volatility of stocks and also allows you to rebalance. This gives you something to do in troubled times rather than dwelling on falling prices and panic selling.

    If you are retired and in drawdown a 20% fall in your portfolio could be dangerous if it occurs early in retirement. So there needs to be a plan for that scenario and it's obviously why annuities were once the default way to fund retirement.
    Last edited by bostonerimus; 16-09-2017 at 2:31 PM.
    Misanthrope in search of similar for mutual loathing
    • A_T
    • By A_T 16th Sep 17, 2:52 PM
    • 182 Posts
    • 85 Thanks
    A_T
    Sometimes, I really wish that people didn't use idioms.
    Originally posted by TrustyOven
    Why do you wish this?
    • bowlhead99
    • By bowlhead99 16th Sep 17, 4:40 PM
    • 6,692 Posts
    • 11,889 Thanks
    bowlhead99
    Sometimes, I really wish that people didn't use idioms.
    Originally posted by TrustyOven
    Why do you wish this?
    Originally posted by A_T
    Presumably because using them to explain the reason for, or projected impact of, an economic or market event to people who aren't familiar with the movement of markets or the effect that's being described, will have to go look it up (an idiom being something with a meaning not determinable from the individual words used).

    For example if something 'takes a bath' is that a good thing because it becomes the cleanest and most desirable thing in the room and everyone is impressed by its performance more than the dirty tired things around it, or a bad thing because it looks like it's going to drown? The latter of course.

    If a fund or market index is 'tanking' or 'in the tank' does that mean it is powering along so strong that it'll ride roughshod over its rivals and knock you out with its performance like a WW2 behemoth? Or does it mean it is in the process of diving into a big tank of water in the manner of a circus clown? The latter of course.

    If your equity or sector of choice is going gangbusters is that just as negative for its performance as it was for the criminal underworld gangs getting busted? Or does it mean it's loud, and packed with great initial excitement, speeding forward with great and immediate success, just like the 60-80-years-ago US 'Gang Busters' radio show used to open with a blaze of sound effects and great vigour. The latter of course.

    One might say it would help communication if we didn't allow people to use idioms, though that would be throwing the baby out with the bathwater in terms of any goal to retain a high quality of discussion (ok, that's more of a metaphor than an idiom...)

    Ahem, back on thread

    In terms of the economics of an interest rate rise and its basic interplay with currency: prospective increased rates being offered create international demand for pounds and that 'supply and demand' effect increases the cost of pounds measured in other currencies. Or looked at the other way round it strengthens the buying power of sterling relative to other currencies and each [foreign currency unit] is worth fewer pounds. Unfortunately it means that if your portfolio gives high exposure to international assets and revenue streams denominated in those [foreign currency units] (non-pounds), those non-pounds will be "worth" fewer pounds when you translate their market value back to pounds (the currency you want to eventually spend).

    That's one reason why many people building their assets to live and retire in the UK would choose to have more than 10% exposure to UK, unlike the OP who prefers less.

    On the bonds side of things, if you have long-dated government bonds which are paying out a fixed amound of pounds per year in interest rate, and the world is in a period of ultra-low interest rates, those long dated safe bonds will be very valuable and people will pay quite a bit more than the 'face value' at time of issue, to buy them on the bond market now.

    But when QE is withdrawn and / or interest rates rise, there is a drop in demand for those bonds - nobody wants to pay the previous highly inflated price of £300 for a bond paying £2 a year interest for the next 40 years, when they could just go out and buy a new bond paying £2 a year interest over the same timescale which only costs them £100; or alternatively put their money in an AA rated bank for 3% interest. Hence a drop in value of certain bonds and bond funds (some more than others depending on the duration and credit quality).

    And finally some other factors at play if/when the interest rates go up:

    a) it is harder for companies to borrow money from banks or money markets to get hold of cheap cash to pursue their long-term investment objectives which woukld have helped them grow their business or defend their market position, so it stifles corporate performance by increasing their expenses or limiting their investment power - not good for the market value of the company ;

    b) likewise the higher cost of consumer credit (credit cards and loans and overdrafts) and greater expenditure on fixed monthly costs such as mortgage interest, means people have less money in their pocket to buy goods and services from companies and so the company's prospective income stream (and thus its market value) is suppressed;

    c) generally if investors can get higher fixed returns from bonds or bank interest they will not want to pay as much for variable returns from dividend-paying or variable equity-based returns, reducing demand for company equities with a consequential reduction in market price for those equities.
    • cjv
    • By cjv 16th Sep 17, 6:46 PM
    • 87 Posts
    • 45 Thanks
    cjv
    Consider the lowest point of the 2008/2009 crash when people were afraid the world banking system would collapse. Would you have had the nerve to put all your cash into shares? And of course you wouldnt have known that it was the lowest point until well after the event.

    Since that time there hasnt been a reallyserious crash. Would you be prepared to wait with your money earning zilch in a deposit account for 10 years whilst everyone else's investments have doubled or trebled in value? When the crash eventually comes the lowest point may be higher than current prices.

    All the time you are out of the market you are missing out on dividends which on their own represent a higher return than many bank accounts.

    So no, it's not a good idea. Better to buy when you have the money and ride the roller coaster.
    Originally posted by Linton
    That makes sense, thanks for the advice

    I will stick to throwing £100 a month into my Vanguard LS60 for the next 10 years and ride the roller coaster!
    Last edited by cjv; 16-09-2017 at 6:56 PM.
    • Glen Clark
    • By Glen Clark 16th Sep 17, 7:14 PM
    • 3,824 Posts
    • 2,793 Thanks
    Glen Clark
    This is why wiser heads than mine only check their portfolio value once a year when they do their tax return and annual rebalance.
    Checking share prices more frequently is likely to cause to elation and depression at best, bad decisions and consequent heavy losses at worst.
    “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair
    • cjv
    • By cjv 16th Sep 17, 7:25 PM
    • 87 Posts
    • 45 Thanks
    cjv
    This is why wiser heads than mine only check their portfolio value once a year when they do their tax return and annual rebalance.
    Checking share prices more frequently is likely to cause to elation and depression at best, bad decisions and consequent heavy losses at worst.
    Originally posted by Glen Clark
    I am hoping I can get myself out of the habit of checking my investments almost daily, one of the traits of a new investor I guess?
    • Alexland
    • By Alexland 16th Sep 17, 9:01 PM
    • 223 Posts
    • 110 Thanks
    Alexland
    No some of have been checking daily for tens of years.

    I was lucky to learn about behavioural investment mistakes early and from examples but I tend to move a bit to cash when I sense the stocks or bonds might be frothy (when fundamentals are being pushed and others stop factoring in risk correctly) and have no reserve in investing as much as I can when markets are falling or I can see good value (when others are fearful).

    However mostly I stay invested and make regular contributions. Following this week I have just moved 2% from cash to shares.
    Last edited by Alexland; 16-09-2017 at 9:09 PM.
    • Fatbritabroad
    • By Fatbritabroad 16th Sep 17, 9:22 PM
    • 170 Posts
    • 73 Thanks
    Fatbritabroad
    I am hoping I can get myself out of the habit of checking my investments almost daily, one of the traits of a new investor I guess?
    Originally posted by cjv
    Its OK to check as long as you don't react badly to what you see. I've also have online access to my work pension (useful as I found our new owners had omitted to pay pensions for two months and was able to notify hr!) and I have found it's helped to view my ISA as merely an extension to my pension. You dont suddenly panic and stop paying into a work pension generally as most people dont even look at this from one year to the next except maybe to scan the statement. When I first started my s and s isas I made lots of the usual mistakes. Buying Individual shares and panic selling when it went up or down 10%. Taking money out then putting it back in. During that time I've consistently put in 15% of my income Into a pension through two major crashes and never even considered doing anything else. With the result that I've paid probably 60k In payments and have 130000 in it. This helped me massively when investing in a s and s isa. If I would do this in a pension why would I do anything else in an isa? A very simple and obvious thing but This was very much a light bulb moment for me! And I work in finance!
    • captainreckless
    • By captainreckless 16th Sep 17, 11:08 PM
    • 15 Posts
    • 7 Thanks
    captainreckless
    Its OK to check as long as you don't react badly to what you see.
    Originally posted by Fatbritabroad
    I agree. I check almost daily but the only thing that ever happens in my portfolio is regular monthly buying into funds. Frequent checking helps implant into my head the idea that prices going down is a natural part of long term investing. I've set myself a rule that the only decision I'm going to make for the next ten years is which fund I'm going to add money to next month.
    • aroominyork
    • By aroominyork 16th Sep 17, 11:17 PM
    • 184 Posts
    • 29 Thanks
    aroominyork
    Experiencing my first mini dip as a new(ish) investor
    Originally posted by Jeems
    For me too, since starting to DIY a couple of months ago (and made worse by Friday’s paper loss being more than the annual value of the pay rise I took my wife out to celebrate tonight!).

    The most conflicting issue for me is being on 10 year retirement investment strategy when the markets seem unsustainably high. Part of me wants the markets to suffer a correction – as painful as it will feel at the time – sooner rather than later, so that the equities have enough time to recover and then grow before I start moving them into safer investments.
    • chiang mai
    • By chiang mai 17th Sep 17, 12:32 AM
    • 31 Posts
    • 4 Thanks
    chiang mai
    Two months ago I took over the management of my drawdown portfolio following two or more years of absolute neglect by the IFA who never once even looked at it! I made some changes and swapped out 40% of my funds because my risk appetite had changed, plus, market conditions were no longer such that I should have been holding certain funds.

    I made a conscious decision to watch the performance of my portfolio daily for two months, the purpose being to understand fund behaviour under a number of conditions. By end August I was ahead 2% but the first two weeks of September saw 60% of that gain evaporate. I then pulled up some historic valuation reports from my trading platform and saw that over the past two years the value of my portfolio had varied by 10%, peak to trough......I now no longer look at it daily, instead, I'll visit once a month or so, not more often than that and I'm much more relaxed about things.
    • A_T
    • By A_T 17th Sep 17, 8:38 AM
    • 182 Posts
    • 85 Thanks
    A_T
    I think when you first start investing it's good to check regularly - that way you can measure your tolerance to volatility and also desensitize yourself to losses.
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