Sanity Check

grey_gym_sock

TCA wrote: »

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?

none, if you have a very strong conviction that markets are too high at the moment. it doesn't make so much sense if you're less certain, but think markets are perhaps a bit high now, and combining that with their volatility, they're likely to be lower at some point. because they can keep looking a bit high (or a bit low, for that matter) for a very long time.

so you can say i'll buy in when markets are 10% below the current level. purely because of general market volatility, there is a good chance you're right, and then you'd gain about 11% by staying in cash until that point. but there's a small chance that you're wrong, and in that case when will you decide you were mistaken? e.g. if it's when markets have risen 50% from the current level, then you'd miss out on that 50% rise before you admit defeat and buy back in. so it's a trade-off, of a good chance of a 11% gain, versus a smaller risk of missing out on a 50% gain.

if you'd rather wait for markets to fall 20% before buying in, it'll a bigger gain if you're right. but there's a bigger risk that you'll be wrong, and markets will not fall to the level you're waiting for.

TCA

gadgetmind wrote: »

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

As you have probably have guessed, I don't have the knowledge for any informed opinion, so the muddling through option is why passive investing interests me. But it's even easier to continue as I have done holding lump sums and maybe, when it comes to the crunch, take a dive into the markets if and when they drop. I think it would be more difficult to continue to hold cash and invest in visibly rising markets.

gadgetmind wrote: »

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

I think you're right and maybe I'm being argumentative, but I was just interested in the strength of thought that we'd have a market drop in the coming years and whether it makes sense to be in the markets in the interim if gains are minimal versus cash.

JohnRo

There's also a risk you'll be dead before all the pieces fall perfectly into place.

TCA

JohnRo wrote: »

Then ask yourself what if the world's 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.

My question would then be why would I want to be in them? Especially if my cash returns are still roughly the same as dividend income. If the answer is because they will ultimately turn the corner and rise past their current levels 10 years down the line, then I'd be looking at jumping in some way along this slow and steady decline. I'm not saying I need to guess the bottom of the market, just suggesting that it might be lower at some point and I cold benefit from that.

grey_gym_sock wrote: »

none, if so you can say i'll buy in when markets are 10% below the current level. purely because of general market volatility, there is a good chance you're right, and then you'd gain about 11% by staying in cash until that point. but there's a small chance that you're wrong, and in that case when will you decide you were mistaken? e.g. if it's when markets have risen 50% from the current level, then you'd miss out on that 50% rise before you admit defeat and buy back in. so it's a trade-off, of a good chance of a 11% gain, versus a smaller risk of missing out on a 50% gain.

Agreed. I suppose it's this "small chance" that I thought I'd attempt to quantify. It just doesn't seem that huge a stretch to me to gamble that the markets will one day be lower than now, and that I'd lose all gains when they drop below current levels (and won't lose out holding cash versus dividends meantime), so wait it out for a bit.....

TCA

JohnRo wrote: »

There's also a risk you'll be dead before all the pieces fall perfectly into place.

Ha ha. Very good. There's the bet then. Will I die before the markets drop below current levels? I'd hope not, but of course that's the crux of my query.

Mind you, there's a good chance I'll kick the can before this thread runs it course, so I shall refrain from more inane questioning. Points all taken and thanks for replying.

Topic back to you JohnRo......and please keep us updated.

grey_gym_sock

there's also the psychological point that, if your plan isn't to buy in at a specified lower level, but at whatever level seems like good value when we get there, then will you really buy in at all, or will you keep on saying that the market could go lower still? because, truly, it always could.

JamesU

sabretoothtigger wrote: »

The best index i know is the pacific trackers. I bought near the peak of 2008 and they made me alot of money, they done fine and I think probably continue to do so barring a worldwide depression which is not true today or likely....Compare pacific to ftse and they great. Australia mostly feeds China and others with commodities I believe so you should worry about their customers more then the source exactly......The biggest shares are often iron ore miners but BHP has oil and gas too, I dont see any of this as massively risky.

Missed these comments. Nothing inherently wrong with that Pacific index (FTSE World Asia Pacific) for sure. Was just pointing out in #20 some key features to bear in mind with this index, as there were other interesting options also worth considering when a portfolio design was being contemplated on thread here (e.g. being "more specific about pacific" along the lines of say HMEF vs HMFE, IAPD, IEMS for variations/geographic/sector balance, increased EM market cap diversity, and/or an income stream which was missing in the portfolio etc). But a mute point now, and nothing further to discuss given the choice of Vanguard UT/OEICs instead of etfs.

JohnRo wrote: »

I must confess the idea of actively dealing ETFs as constituents within a more structured portfolio certainly does appeal, but I estimate the chunks required to make the trades worthwhile would be in the order of £10K each time. Selling on moderate gains and holding long term for income on the falls. I just don't have enough cash wrapped in an ISA to make that sort of trading efficient.

How do you reach your estimate of £10K for trading purposes? Seems too high, that sort of sum would be required if you intended trading say 2% variations in the short term.

If etf trading costs are at a combined £20 on a buy/sell (some providers cheaper of course) and assuming a spread of 0.5% (many etf spreads are lower than this though), a minimum £1.5K - £2.0K purchase should be sufficient to play volatility (+/- any dividends) in a 10-15% region over 0-12 months, depending on timing, the etfs chosen and whatever market conditions. Also worth noting that a 1.5% dealing/spread cost on a £2K investment can be offset in part of full, depending on the volatility of the etf chosen, by buying lower in real time or using a contingent order.

JohnRo wrote: »

I am thinking if I buy an ETF index at what seems an opportune time, and it rises, for the sake of argument, say 10% in a short time I'd sell, on the basis that's a good years worth of growth from my investment expectations. I might well lose out on further gains but won't lose sleep over it.

Should be achievable with practice and patience provided you are familiar with the etfs of interest, and get a feel for their movements in the market. Why don't you try buying etfs without risking any money and see how you get on? You can do this on the UK monthly stock challenge (next one opens 28th October, closes at start of play on Monday Nov 5th, link below). Just research and choose five LSE-listed etfs beforehand, go long or short on them, and then follow your progress through November.

http://www.stockchallenge.co.uk/

JamesU

saveonarola

Another apology to JohnRo if this is taking the thread off-topic, but I enjoyed the discussion about the current market and whether to invest now, and my experience is relevant I think.

About a year ago, I decided to take charge of my investments. I had a large cash lump sum (large, that is, relative to a couple of managed funds that I'd had and neglected for years), and I decided I wanted to invest it for the long term in mostly equities and some bonds, using trackers. But what to do? Bonds looked as though they were in a bubble. Equities also looked over-valued. In the end, I decided to drip-feed the cash, aiming to reach my target asset allocation in roughly three years. This arbitrary time period felt long enough to even out some of the markets' ups and downs, but not so long that it was driven by fear rather than pragmatism.

I was (and am still) expecting crashes in both bonds and equities, and I hoped these would come sooner rather than later, and I would be able to invest at a lower level. But I decided it made no sense to wait. For me passive investing is not just about a sensible investment strategy; it's also about taking the stress out of the whole business. Of course, you can never remove the stress of decision-making entirely - you still have to decide your asset allocation, and I still had to decide over what period of time to transfer the cash into equities and bonds - but having a plan means that you don't have to take notice of the market's ups and downs.

Naturally, I suspect the markets will crash just when I've moved all my cash into equities and bonds, but a suspicion is not the same as knowledge. If you believe in passive investing, then presumably you believe in the efficient markets hypothesis, so you believe that if a future crash were really that obvious, then it would already be priced in. Also, from my own point of view, I would be nervous of remaining heavily in cash in the meantime, partly because the market may not fall in the expected way, but also because inflation may pick up again.

I understand exactly what you're talking about TCA. There's no way of getting around the impact on returns of the precise moment you invest. I suppose one way to mitigate this might be to invest part of your money according to a traditional drip-feeding strategy and try to time the market with the rest of it? I don't know, and I certainly wouldn't offer advice. These are strange times, with the markets captured by central banks and so on. Definitely a difficult time to make any significant moves.

TCA

saveonarola wrote: »

I understand exactly what you're talking about TCA. There's no way of getting around the impact on returns of the precise moment you invest. I suppose one way to mitigate this might be to invest part of your money according to a traditional drip-feeding strategy and try to time the market with the rest of it?

Thanks very much for sharing your experiences saveonarola. And what you suggest above appears to be part of the approach JohnRo is taking. Entirely sensible in my manner of thinking.

JohnRo

JamesU wrote: »

How do you reach your estimate of £10K for trading purposes? Seems too high, that sort of sum would be required if you intended trading say 2% variations in the short term.

Thanks James, you're quite right. That's one option I'm factoring in to that amount, if I'm going to do this I need the option of perhaps taking a smaller worthwhile profit more often from smaller market movements in the right direction though the larger the better obviously. It also allows me an option to use smaller chunks and load up on a dip, maybe even catch the bottom if I'm extremely lucky.

...
http://www.stockchallenge.co.uk/

Will do that, I've been using the Halifax fantasy trader site for a little while but only to mess about on, I do also trade occasionally on the forex markets for real and have for ten years or so on and off but clearly haven't the ability - or enthusiasm if I'm honest - to make big money and live the high life (or the low life) from it.
Psychologically though, there's a huge difference between playing and using real money. I'd like to think I'm well prepared and experienced in making a decision, taking a position to buy or sell and seeing the market move in favour or against it without becoming excitable or distressed about it.

IWeb are looking like the favourite as a suitable platform at the moment with dealing fees of £5 a pop but I'm not rushing into this just yet.

saveonarola wrote: »

Another apology...

not needed, I enjoyed reading.