250k

jamesd

GeorgeHowell wrote: »

But otherwise this is pretty much the stock answer from those who support equities as the bedrock of any portfolio. It largely ignores the vagaries of the markets in the medium (and perhaps long) term, the ever-increasing instability of the world economy, and the fact that the historical-trend based 'equities are best' argument is surely now at best wracked with uncertainty, and arguably completely shot.

I also used the word investment, which includes cash-equivalents, bonds, equities and a range of other things, and the words for corporate and government bonds. It should have been really hard to read such a post as mentioning only equities.

GeorgeHowell wrote: »

I don't see the word "vagary" or a synonym of it in the post, so yes it does ignore it.

So, the post described some investment types and markets as being at low prices and others at high and you conclude that it hasn't mentioned the vagaries of investments, even though that's just what has caused those high and low prices.

Cash is just one part of an investment mixture. It has its place and just like the other parts the proportion that's sensible depends on the circumstances and risk tolerance.

At the moment I have something like four years of spending worth of cash in various investment pots and definitely do appreciate a range of the uses that it has.

GeorgeHowell

gadgetmind wrote: »

Perhaps you need to explain what you mean by "vagaries" and why you think that it's being ignored and by who?



No, you're making statements. If you want to back these up with well-grounded arguments, then please go ahead.

I don't intend to bore the readership with a drawn out argument regrading the semantics of the word vagaries. Equally I can describe something as "arguable" without offering evidence, that's why it's arguable, and not definite.

The real issue is that all the arguments in favour of equities rely on history. Looking ahead nobody knows for sure what's going to happen, obviously. But one lesson of history is that things do change over time, sometimes over a short period. The world moves on, and the old certainties can, and do, wither away. Therefore, especially given the current world economic scenario -- the Euro crisis, the emergence of China as a major player, the long terms flat equity and property markets, the dogged recession etc -- it is arguable that we are entering a period of substantial change whereby the old 'certainties' based on history will no longer hold good. Anyone who refutes this possibility, based on history, is arguably either in denial or has a vested interest to protect.

gadgetmind

GeorgeHowell wrote: »

Equally I can describe something as "arguable" without offering evidence, that's why it's arguable, and not definite.

Yes, I suppose you can, but why not offer evidence?

The world moves on, and the old certainties can, and do, wither away.

The old certainties? Did you check the timescale that firecalc uses for back-testing? Would you really say those times represented some kind of halcyon period for equities investing?

Anyone who refutes this possibility, based on history, is arguably either in denial or has a vested interest to protect.

Sorry, I've never bought "this time it's different" as an argument.

Yes, we could be up for another great depression, and a few wars, slumps, crunches, recessions, depressions and such like. Backtesting shows that a well-constructed portfolio that includes a good wodge of equities lets you draw down more per annum with less chance of total capital loss than a portfolio without said equities.

I'm sure that at pretty much every point since 1871 there have been people claiming that the outlook was such that equities were too risky. Like the stopped clock, sometimes they were right but not often enough to be useful.

Rollinghome

gadgetmind wrote: »

Sorry, I've never bought "this time it's different" as an argument.

I fully understand why people find it comforting to believe that nothing is different and that the next 100 years will be no different from the last. If people prefer to believe that I'm not going to spend time persuading them otherwise.

On the other hand, the absolute certainty of many people that nothing has, or will ever, change and that the future of investment can be determined by the past is a tad worrying. If they want financial security they really should consider the other possibilities with some imagination.

I speak as someone who has large amounts invested in equities but think it important to cover all outcomes as much as possible. I try not to invest on the basis of simple superstition.

It's reasonable to assume that risk investment will always outperform the safe option otherwise why would anyone invest? But it's worth considering whether it's possible there are now different dynamics. As well as the changing nature of investment mentioned by George there's also been a change in the nature of investors.

Once investors formed a small section of society and had to be persuaded to place their money at risk. Now we have a vast investment industry for the masses so that most investment is sold. People at every level have their assets at risk but usually without them making any attempt to quantify the risk. That responsibility is given to the industry with a vested interest in having them invest.

So yes, equity investment may well return again to the predictable sunny days of the nineties. Or something else may happen.

grey_gym_sock

well, the 80s and 90s were historically an unusually good period for equities, not the norm. taking history as a guide shouldn't imply that everything will go smoothly. very long good or bad periods for investing are to be expected. long-term average real returns are not very clear, because adding a good or bad decade or 2 at the star t or end can significantly change the result.

there's 1 fundamental reason why things might be different. exponential economic growth cannot go on for ever, because it eventually comes up against finite resource limits.

gadgetmind

Rollinghome wrote: »

I fully understand why people find it comforting to believe that nothing is different and that the next 100 years will be no different from the last.

Every single year and decade for the last 100 years has been different to all the others. This is why you look for approaches that have worked for every three decade period for well over a century.

So yes, equity investment may well return again to the predictable sunny days of the nineties.

That would be nice, and I'm sure we'll have good years and decades ahead, but my investing strategy is not predicted on "perpetual 90s" in the future.

Or something else may happen

Of course it will! We'll have good years and bad years, good decades and bad ones, booms and busts, war and peace, and much more, just as we have in the past.

GeorgeHowell

gadgetmind wrote: »

Yes, I suppose you can, but why not offer evidence?

Because you can't offer evidence for the future other than by assuming that it will follow the past. And as I and others have argued, that approach does not hold up.

gadgetmind

GeorgeHowell wrote: »

Because you can't offer evidence for the future other than by assuming that it will follow the past. And as I and others have argued, that approach does not hold up.

No-one is assuming the future will follow the past, just that it will be the same mixed bag over multi-decade periods, with some of those periods being deeply grim and others less so.

However, if equities are doomed (doomed, I tell you!) then you need to choose a mix of assets that you think are more appropriate for the forthcoming nothing-like-the-past future.

What would you choose?

grey_gym_sock

baked beans

gadgetmind

grey_gym_sock wrote: »

adding a good or bad decade or 2 at the star t or end can significantly change the result.

Yes, but the firecalc historical approach has 30 year periods that encompass the great depression and two world wars, or even investing the lot just before the Wall Street crash.

While you can come up with an asset mix that works better at some of these starting points, just one inch into the future is darkness, so perhaps we need to prepare for all eventualities?