Sanity Check

TCA

nicknameless wrote: »

Isn't the answer to that darned obvious? If we knew the future then of course you'd pile in at the bottom before a meteoric rise.

OK, I guess I was unclear. We're obviously not talking with any certainty here. I was attempting to offer a hypothetical situation in an attempt to glean where people would plunge in to the market with a lump sum, as opposed to sitting on the sidelines. gadgetmind seemed to indicate that a 10% drop wouldn't be sufficient to keep him out the markets.

You can stick whatever percentages you want on it but the market will move in a range, up and down, over time. That is indisputable, so investing a lump sum at the slump in the market will obviously produce the best result. If I assume (yes, I know) that dividend income of say 3% p.a., equates to what you'd get for your cash on an instant access account, so can largely be ignored, why should a tracker investor invest a large sum of money now instead of waiting? If the market at any point in the future is lower than your starting point today, would you not gain by waiting to invest at that point if your income from cash was approximately equal to your income from dividends from being in the market?

The situation: You are a passive investor investing in a range of global index trackers. I'm giving you an additional 20% for your portfolio in ready cash today. Where does it go? Cash or trackers?

TCA

gadgetmind wrote: »

I'd look at my overall asset allocation and decide how much of the cash needed to be moved into other asset classes.

I guess this is the crux of passive investing and the discipline that I'd need to swallow. My difficulty lies in the fact that this lump sum purchase would be a first purchase towards my preferred asset allocation and I can't get my head round the fact that the timing of such a lump sum purchase is critical to a LTBH strategy given the state of the market at time of purchase.

I'm not at what seems a natural rebalancing point, because of something like dividend income, more akin to you selling off your tech shares I suppose. But your sell off will presumably be minor and not the 20% of total portfolio I'm talking about.

Apologies to JohnRo for sidetracking his thread. Just thought it seemed relevant to his current plan of attack!

JohnRo

TCA why do you feel it has to be a lump sum, can you not do as I've started to and simply make a less than elegant compromise by putting the money in cash savings and feeding the trackers with minimum monthly investments from that savings pot, all the while waiting for that inevitable market fall that may never materialise. Bearing in mind there is nothing to say any fall will be either sudden or severe, it could just as easily be a big or small price reduction but over many months, or not.

If and when there is a fall to a level that sends you buy signals then you're prepared and able to boost the investment at that point, at the very least you'll average the cost of your holdings down and hope to then gain on any subsequent recovery.

buffman

Maybe the market will not fall and then you will have missed the chance to get in at today's levels. The best way is to take out the human element and drip feed money on a regular basis, say the 1st of each month, irrespective of what is happening.

gadgetmind

TCA wrote: »

. gadgetmind seemed to indicate that a 10% drop wouldn't be sufficient to keep him out the markets.

I *like* markets being low.

I like it when everyone is doom and gloom, and papers talk of the end of the world, and reliably inform us that capitalism is over and equities worthless. That's when it's easiest to make money.

A 10% drop would be nice, 20% even better and 50% is the stuff that dreams are made of.

And if it never "recovers", then frankly I don't care.

richyg

TCA,

Love to get one of your accurate crystal balls.

If you get a good one I'll buy it.

As an alernative you could trust the long term belief in capitalism to push up the market over the long term.

Either that or leave it in the post office account.

Both methods seem lower stress than anxious attempts at market timing.

R.

TCA

buffman wrote: »

Maybe the market will not fall and then you will have missed the chance to get in at today's levels. The best way is to take out the human element and drip feed money on a regular basis, say the 1st of each month, irrespective of what is happening.

I agree with this entirely approach but I'm of the opinion that the market will fall again. It would take a brave investor to say categorically that this will not happen and markets are forever on the rise for the next 20 years or whatever.

JohnRo wrote: »

TCA why do you feel it has to be a lump sum, can you not do as I've started to and simply make a less than elegant compromise by putting the money in cash savings and feeding the trackers with minimum monthly investments from that savings pot, all the while waiting for that inevitable market fall that may never materialise. Bearing in mind there is nothing to say any fall will be either sudden or severe, it could just as easily be a big or small price reduction but over many months, or not.

If and when there is a fall to a level that sends you buy signals then you're prepared and able to boost the investment at that point, at the very least you'll average the cost of your holdings down and hope to then gain on any subsequent recovery.

JohnRo, I think your method is entirely sensible and I may well end up doing exactly the same thing. I'm just trying to justify the logic of being in the market at all given certain conditions.

I keep going back to this: IF someone was of the opinion that markets would one day fall below current levels, what is the benefit to being in the markets now and until that time? Given:

a) You're tracking the market, so any future gains you make will eroded when the market falls to whatever prices below your current and future levels of purchases and,

b) The income/dividends from being in the market aren't significantly better than you'd get from an instant access cash savings account.

TCA

richyg wrote: »

As an alternative you could trust the long term belief in capitalism to push up the market over the long term.

Both methods seem lower stress than anxious attempts at market timing.

Would you bet your mortgage on the fact that markets won't drop below current levels in the 20 years?

If not, and I can keep my money in your post office account earning the same return as dividend income, why should I bother investing in the markets now when all my capital growth gains would be taken from me in the next market slump?

Why not invest when (ok, if) the crash comes and make maximum gains. Where's the stress given I'm not losing out by holding cash. What am I missing here?

gadgetmind

TCA wrote: »

I'm of the opinion that the market will fall again.

How strongly do you hold that opinion and how bold are you to act upon it?

It would take a brave investor to say categorically that this will not happen and markets are forever on the rise for the next 20 years or whatever.

Only a truly stupid investor would say anything remotely like that.

What's true is that *no-one* can call this. Predictions for value of markets at year ends are all universally bogus, many too high, many too low, and none calling the intermediate dips and rallies.

A portfolio that can muddle through no matter is the only sensible approach.

Tweak based on fundamentals if you like. I do, and it's mostly worked, but it's gone badly at times too.

JohnRo

TCA wrote: »

I agree with this entirely approach but I'm of the opinion that the market will fall again. It would take a brave investor to say categorically that this will not happen and markets are forever on the rise for the next 20 years or whatever.

Then ask yourself what if the worlds markets are on a slow and steady decline for the next 10 years? When will you ever invest in any of them?

You've got to be in it to win it.