The Stock Market Takes Another Dive - Steer Clear ?

1echidna

Radiantsoul wrote: »

I would put them in a seperate post, people will miss them in this one.
I also feel that whilst this is your opinion you have not presented a cogent argument to support this.

I am not really interested in where you would put them, subject to the opinion of the board owners.

Again I am not really interested in your opinion of cogent arguments. You don't have a good record for them.

Linton

Radiantsoul wrote: »

I would be interested to hear this too. I guess bonds are the obvious option. Foreign exchanges too, although I suspect they are quite closely correlated with the FTSE100. Other asset class apart from cash are quite expensive for a small private investor to get involved in.

Yes, all equity exchanges will be roughly correlated in the short term as we now have a global market, and any major "event" anywhere will affect everyone.

But if you are invested for the long term the occasional credit crunch with a 50% drop or whatever doesnt matter. What becomes important are the underlying trends. So if you believe that in the long term commodity shortage is going to be a problem, invest in commodities. If you believe that, say, the far east will outperform the UK and Europe, invest in the far east. This is where I believe the FTSE tracker advocates are wrong - you get the global fluctuations but I see no obvious reason why the varying set of large companies that just happen to be quoted on the London exchange should represent a focus for underlying growth.

If you want to even out the fluctuations in the short/medium term you need to invest in a range of asset classes. High quality bonds and cash are the obvious alternative to equity.

The very small investor would have difficulty setting up an asset class diversified portfolio so I would recommend a balanced or cautious managed fund where you pay the fund manager to maintain the proper allocation.

gadgetmind

Linton wrote: »

But if you are invested for the long term the occasional credit crunch with a 50% drop or whatever doesnt matter.

Not only doesn't it matter, but it increases your return as long as you continue to invest and rebalance.

So if you believe that in the long term commodity shortage is going to be a problem, invest in commodities. If you believe that, say, the far east will outperform the UK and Europe, invest in the far east.

Maybe, but an "all or nothing" approach is very risky. I prefer to start with an even global spread and then under/over-weight based on macro economics and value metrics.

The very small investor would have difficulty setting up an asset class diversified portfolio so I would recommend a balanced or cautious managed fund where you pay the fund manager to maintain the proper allocation.

I guess it depends on how you define "very small".

dunstonh

OK - so if a FTSE tracker is not safe (I'll make that "relatively safe" if I may) what is?

Its not relatively safe either. If you take a basic 1-10 risk scale with cash being 1 and the highest risk UT/OEIC being 10 then the FTSE tracker would come out at 7. I dont think you can class any investment that is two thirds of the way up the risk scale as being safe.

1echidna

EU could review Iran oil ban in coming months: official

Link

thasquizza

Oil is the safest thing to invest in at the moment with everything that is going on in the countries that hold most of the worlds oil supplies

gadgetmind

dunstonh wrote: »

If you take a basic 1-10 risk scale with cash being 1 and the highest risk UT/OEIC being 10 then the FTSE tracker would come out at 7.

I wonder where my subordinated debt of bombed-out banks would come?

OTOH, someone on the Fool forums recently bought £65k worth of debt in the fifth largest bank in Kazakhstan, so maybe I'm Mr Cautious!

Radiantsoul

Linton wrote: »

If you believe that, say, the far east will outperform the UK and Europe, invest in the far east. This is where I believe the FTSE tracker advocates are wrong - you get the global fluctuations but I see no obvious reason why the varying set of large companies that just happen to be quoted on the London exchange should represent a focus for underlying growth.

Adjusted for risk I would have think difference in expected returns are likely to be factored in.
I suspect that investing in developing countries will increase returns, but at the price of bearing higher risk.

dunstonh

gadgetmind wrote: »

I wonder where my subordinated debt of bombed-out banks would come?

OTOH, someone on the Fool forums recently bought £65k worth of debt in the fifth largest bank in Kazakhstan, so maybe I'm Mr Cautious!

lol - i think we will need a few more digits than a 1-10 scale for that one!

IronWolf

My 2p on the "risk" of the FTSE. Well, my definition of risk is long term loss of capital, including inflation. In that respect, cash is risky, because its guaranteed to lose value.

Government bonds are also risky currently as they have very low yields, so you wont beat inflation. Also there is a (small) risk the government will just default.

Equities, well they are inherently risky, because company profits aren't guaranteed, but imo the odds of equities beating the above 2 assets classes are greatly in favour of equities.

But imo treating assets classes as a whole isn't ideal. I wouldnt just invest in any equity. My portfolio is designed to deliver me my desired returns over the long term, which if I've done correctly, will mean I beat inflation. To me that seems like the least risky choice. My portfolio may decline 50% in value one year, I dont care, I'll buy more if the fundamentals are unchanged. Over the long term, knowing when to buy and sell makes equities a lot less risky.

The fact that the FTSE100, not an ideal index, has almost matched cash in a bank account from the peak in 99 to now, with dividends, surely shows that even if you buy at the top of a euphoric bull market, equities deliver better than cash.

I always say, investing in equities needs both brains and balls. Brains to pick sensible investments, and balls to keep your nerve if you lose 50% of your wealth temporarily.