ISA fund dropping

dunstonh

Can I ask what your strategy for dealing with crashes is Dunston?

Nothing really. You cannot predict the unpredictible. You dont know when the top of the market is or the bottom. You can get a feel for it but thats all.

What you can do is make sure you invest within your risk profile from the start. Understand the level of potential loss that your investments have within them during bad times and work on the assumption that in any 5 year period you are going to see at least one period of major loss.

You should also remember to rebalance your portfolio each year within a given tolerance (which only works when you have diversified in the first place). So if, for example keeping it really simple, you had a portfolio that was 25% equity, 25% property, 25% fixed interest and 25% cash but over a year or two it had become 35% equity, 25% property 20% fixed interest and 20% cash then you should move 10% of the equity into the cash and fixed interest to bring them back to 25% again.

That effectively allows you to pocket the gains in the good times and put the money back in during the bad (when the markets have dropped). Rather than let the portfolio get an increasing amount of equities build up and then you take a bigger hit when it crashes.

over the last 6 years (prior to market drop) a 25% equity content could have become 50% equity content on an unmanaged spread. A 28% stockmarket crash on 25% of your portfolio doesnt hurt as much as a 28% drop on 50% of it.

turbobob

Thanks. Hindsight is a wonderful thing and its very easy to start thinking "if only", but I agree you can't call the bottom or top of any market.

One thing that I'm seeing very clearly now is that top performers can very quickly turn to bottom performers during difficult conditions. Something well worth remembering.

dunstonh

One thing that I'm seeing very clearly now is that top performers can very quickly turn to bottom performers during difficult conditions. Something well worth remembering.

Oh yes. Remember top performers in good periods may be there because they take a bit more risk and in good times it pays off. In bad times it doesnt and the hit is bigger. Often, looking for second quartile consistency is better than looking for top quartile outperformance.

black_taxi_2

good thread

i feel sorry for the people who had financial/ banking as the core of there portfolio--for a strong saftey base.must be devastated people about.