50% tracker 50% cash use when market falls

authentic

Just an idea to possibly maximise an investment capital further. Simplified version.

Drip-feed 50% into a tracker/active fund and 50% into an ISA/savings account. When the market falls use the saved cash to buy extra units at rock bottom prices and repeat.

Rationale: It's almost impossible to time when the market reaches the top but the market crash is much more evident, you'll know when it happens.

Could it work?

RayWolfe

It would and does. But as you say you don't know where the top is, equally, you don't know where the bottom is.

dunstonh

What you are talking about is rebalancing, albeit on a very simple basis with just two areas. The key is not to do it when you think the markets are low and high but to do it on a periodic basis when they are sufficiently out of sync. (i.e. no longer 50/50 in your case).

Rationale: It's almost impossible to time when the market reaches the top but the market crash is much more evident, you'll know when it happens.

Market crashes are historically much smaller than the last two. They are not usually predictable. Often you may feel there is one due but could come out too early and miss out on 30% more growth before a 25% drop occurs. You will also miss most of the recovery as chances are you will wait too long before going back in. This is why it is futile to try and time the market.

Linton

authentic wrote: »

Just an idea to possibly maximise an investment capital further. Simplified version.

Drip-feed 50% into a tracker/active fund and 50% into an ISA/savings account. When the market falls use the saved cash to buy extra units at rock bottom prices and repeat.

Rationale: It's almost impossible to time when the market reaches the top but the market crash is much more evident, you'll know when it happens.

Could it work?

Yes - this is a simplified version of portfolio balancing and is the standard way to ensure you gain from the unavaoidable rises and falls in the market.

To take your proposal one step further - you hold 50% in cash and 50% in shares. After a year (not too often) you will find that your holdings are no longer split 50/50, so you move the excess in one to the other to return to 50/50. In this way you take some of your profits when the market is high and buy into the market when it is low.

ses6jwg

You might be waiting years and years for a crash and even then you might not get it right and it falls further...

Jonbvn

This is just rebalancing. All portfolios should be managed in this manner on a regular basis. I do it twice yearly, irrespective of the situation in the markets. I think some people do it more often.

Trying to determine when you are at the peak or trough of the market is virtually impossible. Remember markets can stay irrational longer than you can stay solvent.

authentic

The word "rebalancing" is cropping up most frequently and that's what I should be focussing on then. Rather than timing the market lows I can still exercise the above idea but in a safer way by simply rebalancing my portfolio.

Thanks very much for all your responses, it helped a lot!