Defensive funds - any suggestions

Eco_Miser

pt1188 wrote: »

As I've said my investment time frame is 10 years so I don't have the luxury of time to ride out the storm.

Really? How much are you planning on drawing down in the first year of retirement? How does that compare to the expected annual income from these investments?

Ryan_Futuristics

jimjames wrote: »

The problem isn't when everyone says it's a bad time to invest, the problem is when it's universally agreed it's perfect.

Everyone bailed out in 2009 but that was the time to pile in. I don't think things ate overvalued at the moment, I'm sure there will be bumps along the way but I can't see the point in holding cash waiting until there's a crash. If it happens how do you know it's the bottom etc.

It's a tricky one when it's you own money ... If I was just doing monthly savings, I think I'd be quite happy to invest 80-100% in equities (knowing I'd be buying in all sorts of markets)

But I've found there's a level (perhaps when investments represent 5-10 years of income) where the need to preserve capital takes over

I would have something resembling an All Weather or Risk Parity portfolio, with a value tilt ... But with bonds yielding so low, and P2P lending still an uncertainty, it's tricky knowing what to do with 50-60% of your capital apart from having it in cash


The sobering worry in 2009 was that we'd sink into a very prolonged global recession (maybe decades), and capital could still halve and halve again (even when people were selling on the dip)

That crazy concept that even if you're nursing 90% losses, you don't want them to go down to 95%, and halve your capital again - and when the media's painting a picture of global financial meltdown, it's so easy to see how people made bad decisions then

masonic

Ryan_Futuristics wrote: »

But I've found there's a level (perhaps when investments represent 5-10 years of income) where the need to preserve capital takes over

One would think so... But I found this quite interesting

http://www.financialsamurai.com/should-i-buy-bonds-wealthy-people-dont/


Seems like the oldies aren't always so risk averse.

Linton

Ryan_Futuristics wrote: »

It's a tricky one when it's you own money ... If I was just doing monthly savings, I think I'd be quite happy to invest 80-100% in equities (knowing I'd be buying in all sorts of markets)

But I've found there's a level (perhaps when investments represent 5-10 years of income) where the need to preserve capital takes over

I would have something resembling an All Weather or Risk Parity portfolio, with a value tilt ... But with bonds yielding so low, and P2P lending still an uncertainty, it's tricky knowing what to do with 50-60% of your capital apart from having it in cash
....

You are right that investing in situations when success or failure can have life-changing implications changes ones attitudes somewhat.

However having 50-60% in cash seems remarkably risk averse for an enthusiastic investor who is convinced he has insight into the future of the major markets. As I have retired and am planning on living another 30 years it seems to me that it is perfectly sensible for years 10-30+ to be covered by 100% equity. And for years 5-10 to include some equity component.

Ryan_Futuristics

masonic wrote: »

One would think so... But I found this quite interesting

http://www.financialsamurai.com/should-i-buy-bonds-wealthy-people-dont/


Seems like the oldies aren't always so risk averse.

That is surprisingly bullish from the oldies ... Although I know a few people in their 70s who are purely invested in a handful of stocks (fewer than half a dozen - different era of investing they come from)

And dividends support them entirely - so I don't think they even look at where the capital is

Linton wrote: »

You are right that investing in situations when success or failure can have life-changing implications changes ones attitudes somewhat.

However having 50-60% in cash seems remarkably risk averse for an enthusiastic investor who is convinced he has insight into the future of the major markets. As I have retired and am planning on living another 30 years it seems to me that it is perfectly sensible for years 10-30+ to be covered by 100% equity. And for years 5-10 to include some equity component.

Well I think my caution does come from believing I have some insight into the markets

I don't think the average investor is aware that any global market can enter a 20-30 year bear phase, that dividends aren't fixed at 3.8%, that an ageing demographic could become a major challenge for global economic growth, and that this century could look drastically different from the previous one

I like risks, but only when I feel I've got all the information ... And with markets at the moment, I feel QE makes it very difficult to know where valuations should be or how healthy markets and economies really are

So in some sense I acknowledge that I know less about where markets will be in 10, 20 and 30 years time than people who assume any sort of "typical" return

But the amount I've got in cash is a dilemma ... I ponder putting a significant amount into P2P lending and drawing down (rather than reinvesting) into equities to maintain long-term drip-feeding (although most the returns I've made in recent years from equities have come from timing investments)

Linton

Ryan_Futuristics wrote: »

.......

I like risks, but only when I feel I've got all the information ... And with markets at the moment, I feel QE makes it very difficult to know where valuations should be or how healthy markets and economies really are

So in some sense I acknowledge that I know less about where markets will be in 10, 20 and 30 years time than people who assume any sort of "typical" return

......

Isnt everyone always in the position that they dont have all the information about future markets? And when people think they do have all the information they are normally wrong.

The risk averse reaction is to say we must therefore invest ultra-safely because the future could be horrible. Unfortunately that guarantees poor returns with the risk of ultimately losing out to inflation.

An alternative approach is to ensure one is safe for a few years during which inflation can be ignored. Anything in the long distant future can be covered by a very diversified range of equities and one plans cautiously on the basis of averages because there is no other data. Of course things could still end up badly, but if that happens the chances are that any other strategy chosen beforehand wouldnt have done much better.

Chris75

Linton wrote: »

........................An alternative approach is to ensure one is safe for a few years during which inflation can be ignored...............

What is "safe"?

I would also observe that age, expectations of future income streams etc mean that the long term may be of lesser or greater interest.

Linton

Chris75 wrote: »

What is "safe"?

I would also observe that age, expectations of future income streams etc mean that the long term may be of lesser or greater interest.

Yes. I was referring to the oldie asset allocation. Here safe would be cash, perhaps some bonds. And the longer term (> 5 years) is probably of great interest. The point being that lack of knowledge of the longer term future neednt be a justification for extreme risk aversion.

Ryan_Futuristics

Linton wrote: »

Isnt everyone always in the position that they dont have all the information about future markets? And when people think they do have all the information they are normally wrong.

The risk averse reaction is to say we must therefore invest ultra-safely because the future could be horrible. Unfortunately that guarantees poor returns with the risk of ultimately losing out to inflation.

An alternative approach is to ensure one is safe for a few years during which inflation can be ignored. Anything in the long distant future can be covered by a very diversified range of equities and one plans cautiously on the basis of averages because there is no other data. Of course things could still end up badly, but if that happens the chances are that any other strategy chosen beforehand wouldnt have done much better.

Well 25-35% equities (at many points in history) would've been considered quite a standard, all-purpose allocation ... There's the old adage "Never be less than 25% in the market or more than 50% in the market"

For much of the earlier 20th century, you had prolonged flat markets and major depressions, and I think people were generally more cautious (and perhaps realistic in their expectations)

The surge in equities we saw in the latter half, which perhaps ground to a halt in 1999 - when we entered today's cyclic bear/bull market - mirrored huge global change as the world opened up to the free market, and shanty towns in East Asia became factories and cities

When we look back over 100 years or 50 years in the market, we're seeing global changes which have now slowed ... We look back over 10 years or 5 years and we only see selective parts of a cyclic bear/bull market ... I'd be more inclined to look back to the earlier days of the markets for my expectations for the foreseeable future

Valuation is ultimately what gives me confidence to hold an investment ... Whatever markets do, millions of tiny decisions every day are influenced by valuation, and when the noise smooths out, it's those that follow a consistent trend ... But no one really understands how all this QE money might be skewing both the price and earnings side of valuations

But I'll certainly concede caution's probably cost me more than optimism

TheTracker

Ryan_Futuristics wrote: »

Well 25-35% equities (at many points in history) would've been considered quite a standard, all-purpose allocation ... There's the old adage "Never be less than 25% in the market or more than 50% in the market"

Benjamin Graham suggested the never/always to be 25-75% not 25/50. And the residual 25-50 in bonds which to me is still "the market", rather than your cash. Perhaps there is an older adage, and you've said it before on this forum without attribution, but that's a very different proposition.