What are the downsides to short term investments

Al.

It's fraught with difficulty because of sequential risk return, etc. Now, we have people who go into 'drawdown' (sorry, make that 'falldown') and think they can invest it in the same way that they invest when they're growing their wealth. It's a completely different investment proposition - one that relies on understanding volatility, alpha, strategy using cash and a wide variety of different risk based approaches. In five years, there'll be legions of DIY investors facing income ten, fifteen percent lower than they thought - wondering why all of a sudden the skills that they had in their forties stood for nothing. And they won't have a clue why.

Pincher

AlanP wrote: »

Were The Eagles playing live in the bar?

It was only 13 years ago. The $25 hotel room was a loss leader to tempt you to stay overnight, otherwise you would just drive on to Vegas. Rooms in Vegas were only $50+, if you do a bit of research. Not the Bellagio, alas.

Money Saving even when going to the casino.

JimmyTheWig

Ok, I've got my answer. And it is "No".
I think grey gym sock alluded to this in post #4. It's all to do with taking a fixed amount out at a fixed time.

Lets first consider the default position where I don't put the extra £5k in.
So I start with £15,000.

Scenario A. Markets fall by 20% in the first two years, then rise by 25% in the next two years.
After two years my £15,000 has fallen to £12,000.
After a further two years my £12,000 has risen to £15,000.

Scenario B. Markets rise by 25% in the first two years, then fall by 20% in the next two years.
After two years my £15,000 has risen to £18,750.
After a further two years my £18,750 has fallen to £15,000.

Average of two scenarios is £15,000.


Now lets consider adding the extra £5k for two years.
So I start with £20,000.
Same scenarios.
Scenario A. Markets fall by 20% in the first two years, then rise by 25% in the next two years.
After two years my £20,000 has fallen to £16,000.
I take out my £5,000, leaving £11,000.
After a further two years my £11,000 has risen to £13,750.

Scenario B. Markets rise by 25% in the first two years, then fall by 20% in the next two years.
After two years my £20,000 has risen to £25,000.
I take out my £5,000, leaving £20,000.
After a further two years my £20,000 has fallen to £16,000.

Average of two scenarios is £14,875.

atush

JimmyTheWig wrote: »

Are you saying that when I need my £5k, my £20k may have become £3k? I understand that that is possible, but so very unlikely with a broad range of investments.
Or are you saying that when I need my £5k, my £5k may have become £3k? If that's the case then I'd use my long term investments to back it up.

Door no2. But then your 15K may be worth less too if it is invested. So back up could hurt.

Emergency cash should be- IN CASH. So you dont ever have to sell investments at a loss short term.

I love investments in equities and a lot of our cash is there. But we keep a lot in cash for emergencies/known upcoming spending (incl univ fees and car replacements), and when we retire (and will keep most of our money still invested) we will keep 2/3 years spending in cash as then we will not have to sell investments during a downturn.this would be well into 6 figures in cash.

N1AK

JimmyTheWig wrote: »

Or are you saying that when I need my £5k, my £5k may have become £3k? If that's the case then I'd use my long term investments to back it up.

You could but that would be highly inefficient. You'd have bought £20k in investments, then liquidated 42% of it to get £5k back out. You'd then have £5k and shares worth £7k. If you'd kept the £5k out the you'd have the £5k and shares worth £9k (nearly 25% more left in your investment pot).

Personally I'd suggest considering investing money there's a reasonable (20%+) chance of you wanting to use a decent chunk of (20%+) very carefully.

Thrugelmir

princeofpounds wrote: »

If you think about it in terms of roulette - on any given spin, it could be red or black - an extreme outcome of 100%/0% in favour of one colour. But after a number of spins, the statistical 50/50 average would assert itself, and with a thousand spins you would almost always get something more like 50.1%/49.9% red/black. Those extreme events get diluted in importance over time.

Hedge funds used rocket scientists to design trading programmes. Every so often zero comes up. There's no where to hide when it does. Appears the way of Glencore and other miners at the moment.